Growth in euro-area manufacturing and services slowed in April in a sign that bond purchases by the European Central Bank (ECB) will take time to revive a fragile recovery.

A Purchasing Managers Index (PMI) for both industries fell to 53.5 from 54 in March, London-based Markit Economics said on Thursday. While the reading remains well above the 50-point mark that divides expansion from contraction, it is below the 54.4 forecast by economists in a Bloomberg survey.

“The weaker rate of expansion is a big disappointment, given widespread expectations that the ECB’s quantitative easing will have boosted the fledgling recovery seen at the start of the year,” said Chris Williamson, chief economist at Markit. “However, it’s too early to draw firm conclusions about whether growth is faltering again and the effectiveness of policy.”

While ECB President Mario Draghi has already pointed to some positive effects created by the 1.1 trillion-euro (US$1.2 trillion) plan, he has also cautioned that the region’s recovery won’t be sustainable without government reforms. Investors have begun to lose some of their confidence in the performance of Germany, Europe’s largest economy, as global weakness damped export prospects.

 

Chinese Slowdown

A Chinese manufacturing gauge fell to a 12-month low in April, suggesting government efforts to cushion a slowdown have yet to revive the nation’s factories. First-quarter data showed the weakest economic expansion since 2009, prompting policy makers to cut banks’ reserve requirements by 1 percentage point this week in an effort to halt the slide.

European bonds climbed and the euro weakened with the region’s stocks and U.S. equity-index futures after the weaker-than-estimated PMI reports.

Yields on German 10-year bonds fell two basis points by 10:24 a.m. in Frankfurt, as the euro slipped 0.1 percent to $1.0719 and the Stoxx Europe 600 Index dropped 0.8 percent. Contracts on the Standard & Poor’s 500 fell 0.5 percent.

Weakness in Europe and Asia is putting the focus back on U.S. economic data, with initial jobless claims data and a factory report due Thursday.

“It remains to be seen whether April’s slowdown in manufacturing and services expansion is primarily a correction following four months of improvement, or signs that the pickup in Eurozone economic activity is leveling off,” said Howard Archer, chief European economist at IHS Global Insight in London. “It could be that heightened concern over the Greek situation is having some dampening impact.”

 

Greek Uncertainty

The ECB has almost doubled an increase in emergency funding to Greek banks from last week before political talks shift to Brussels and Latvia over the country’s bailout review. Greek Finance Minister Yanis Varoufakis said on Tuesday that an April 24 meeting in Riga is probably too soon to seal an agreement, and euro-area finance ministry officials have expressed doubts about whether Greece’s incremental progress would be enough to unlock emergency loans.

Euro-area services activity dropped to 53.7 from 54.2 in March, while a similar index for the manufacturing industry fell to 51.9 from 52.2, Markit said. Gauges for both industries also signaled slower growth in Germany and France, while output in the rest of the euro region expanded at the strongest pace since August 2007, according to the report.

PMI data are “indicative of the Eurozone economy growing at a reasonably robust quarterly rate of 0.4 percent at the start of the second quarter,” said Williamson. Output rose at the same rate in the first three months of the year, according to a separate Bloomberg survey.

ECB projections released in March foresee growth accelerating from 1.5 percent this year to 2.1 percent in 2017.

 

– With assistance from Kristian Siedenburg in Vienna and Harumi Ichikura and Ainhoa Goyeneche in London.

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