LONDON, May 23 (Reuters) - Euro zone economic growth slowed much more sharply than expected this month, a business survey showed, which along with weaker inflation suggests a stiffer policy challenge for the European Central Bank ahead.
The ECB will end its asset purchase programme this year and hike interest rates in 2019, a Reuters poll found last month, although policymakers may be concerned to see inflation pressures easing alongside weakening growth.
While the expansion still remained relatively strong, growth slowed in both of the bloc’s two biggest economies, Germany and France. Forward-looking indicators also deteriorated, suggesting no imminent bounce-back.
IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good guide to economic health, sank in May to an 18-month low of 54.1 from 55.1, below all forecasts in a Reuters poll which predicted a dip to 55.0.
“It is a gloomier-looking picture than we were seeing at the turn of the year,” said Chris Williamson, chief business economist at IHS Markit. “But let’s not get too carried away with the fact we are slowing — we still have reasonably robust PMI numbers.”
He said the PMI, alongside the April reading, pointed to second quarter growth of 0.4 percent, weaker than the 0.6 percent prediction in an April Reuters poll.
A composite output price index fell to an eight-month low of 53.0 from 53.4. Euro zone inflation slowed to 1.2 percent in April, official data showed last week, moving further away from the ECB’s 2 percent target ceiling.
Despite those easing...