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Services sector in Eurozone slowed significantly in July 2016

The services sector in Eurozone slowed significantly in July 2016, after the British referendum for Brexit has darkened the prospects for the region. The Purchase Managers Index (PMI) for services sector dropped to 18-month low, reaching 52.7 points in July from 52.8 points in June. Although the indicator of manufacturing and the overall index for the two sectors also reported a decrease, all of them remained above the level of 50 points, which indicates expansion.

Britain’s decision to leave the EU is clouding prospects for its neighbors. The International Monetary Fund (IMF) turned this week, it is no longer so optimistic about global growth and warned that the negatives could worsen if confidence among investors and companies drop. Most negative effects will be felt by the developed European economies.

The business confidence about prospects in the service sector has deteriorated to the lowest level of the last year and a half. This is mainly due to political and economic instability, as a result of the British referendum, indicating short-term downside risks for the Eurozone economy, which has stalled. The indicators suggest that the region’s economy is growing at a slow but relatively steady annual rate of around 1.5%. The central bankers will find security in the sustainability of PMI index immediately after the vote about Brexit, but fragile recovery leaves plenty of room for speculation about additional stimulus later this year.

The British economy obviously contracted by its fastest rate since the financial crisis in the first month after the vote about Brexit, the index of business activity noted its biggest drop in 20-year history. The data show that the services sector – one of the main growth engines of the British economy is particularly hard hit by votes out of the EU.

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