By Jonathan Cable
LONDON (Reuters) - Further price cutting failed to prevent a slowdown in euro zone business growth this month, a survey showed, likely disappointing the European Central Bank which wants inflation to rise.
The ECB's swathes of cheap loans and interest rate cuts, alongside a top-up to its monthly bond purchases, appear to have had little effect on inflation or private sector growth.
Markit's Composite Flash Purchasing Managers' Index (PMI) for the euro zone, based on surveys of thousands of companies and seen as a good guide to growth, dipped to 53.0 from March's 53.1, matching a 13-month low in February.
A Reuters poll had predicted a rise to 53.2. A reading above 50 denotes growth in activity.
"April's small fall in the euro zone Composite PMI adds to the evidence that the region's recovery is slowing," said Jack Allen, European economist at Capital Economics.
"Overall, the survey suggests that the euro zone's economic recovery is still too slow to generate much upward pressure on inflation. We think that the ECB will eventually need to do more to boost growth and inflation."
The ECB has been easing policy aggressively, cutting rates deeper into negative territory and expanding purchases in a bid to prop up inflation. The central bank will begin buying corporate bonds in the second half of this year.
President Mario Draghi left policy unchanged on Thursday as the bank waits to see how the two stimulus packages announced since December play out but hinted further easing could come.
Consumer price inflation did halt its fall in March, coming up to zero year-on-year, but still nowhere near the ECB's 2 percent target ceiling.
Markets took the PMI data largely in their stride, instead focussing on talk the Bank of Japan could effectively start paying banks to borrow its cash which sent the yen tumbling.
FRENCH DRAG
Any PMI reading below 50 signifies a contraction and the output price index has now been sub-50 for all but two months in the past four years. It came in at 48.9 in April, just above 48.6 in March.
Yet the price-cutting highlighted in Friday's survey had little effect on the bloc's dominant service industry where growth failed to live to up to expectations.
The services PMI was 53.2, above March's 53.1 but missing the Reuters poll median of 53.3.
A PMI covering manufacturing confounded hopes for a rise to 51.8, instead falling to 51.5 from 51.6. An index measuring output, which feeds into the composite PMI, slumped to 52.5 from 53.1.
Activity in France's private sector was boosted by a stronger than forecast rebound in the dominant services industry to the highest level since November, when Islamist militants killed 130 people in Paris but that was offset by a surprisingly sharp contraction in manufacturing. [nL9N14J009]
"PMIs show the French economy stagnating in the first quarter. The start of Q2 is hardly better, which means France continues to be a drag on the euro zone economy," said Teunis Brosens, a senior economist at ING.
In Germany an upturn in manufacturing was not enough to make up for a slowdown in services, meaning growth slowed to a nine-month low.
The euro zone report also suggested May won't be much better. Factories barely increased buying the raw materials they need to manufacture products. The quantity of purchases sub-index fell to a one-year low of 50.1 from 50.9.
And services firms only managed to build a very small backlog of work, meaning they will have to rely on new orders next month. That sub-index nudged down to 50.1 from 50.2.
Markit said the PMI pointed to second quarter growth of around 0.3 percent in the bloc, below the 0.4 percent predicted in a Reuters poll last week.
(Editing by Toby Chopra)
