LONDON (Reuters) - Euro zone business activity expanded at its weakest rate since the start of 2015 this month as growth paths diverged but firms stopped cutting prices for the first time in a year, surveys showed on Friday.
Markit's composite survey showed a big split between buoyant manufacturers and struggling service industry firms and a similar divide in growth rates among members of the currency union.
"It's a pretty disappointing end to the third quarter. We have seen unevenness between manufacturing and services but also between the nations," said Rob Dobson, director of economic indices at Markit. "Germany slowed, France did quite well, those outside the big two slowed."
The euro zone flash composite Purchasing Managers' Index, seen as a good overall growth indicator, fell to 52.6 from August's 52.9. A reading above 50 indicates growth but that was its lowest level since January 2015.
A Reuters poll of economists had predicted only a slight dip to 52.8. Dobson said the PMI pointed to the bloc's GDP expanding around 0.3 percent this quarter, in line with a Reuters poll earlier this month that suggested economies stuck in low gear need fiscal policies rather than more monetary easing.
Years of ultra-loose policy have so far failed to get inflation anywhere near the European Central Bank's 2 percent target ceiling so policymakers may take some cheer from firms halting price discounting for the first time in a year.
The output price index rose just above the breakeven mark to 50.1 from 49.3.
"You are seeing some inflationary pressures coming back into the system - they are not particularly strong but given the low inflation period we are coming out of, any movement up will be heartening for the ECB," Dobson said.
Consumer confidence rose in August, official data showed on Thursday, and manufacturers had a much better September than expected. Their PMI climbed to 52.6 from 51.7, beating all forecasts in a Reuters poll, while an index measuring output rose to a nine-month high of 54.0 from 53.3. The rally could continue into October, as new orders came in at a much faster rate. The sub-index leapt to 53.0 from 51.4.
A PMI covering the bloc's dominant service industry slumped to 52.1 from 52.8, however, its lowest reading since late 2014 and below all forecasts in a Reuters poll which had predicted no change.
Optimism among businesses in the industry also continued to slide with the expectations index falling to a 21-month low of 60.3 from 60.7.