Eu­ro­zone busi­ness growth still strug­gling for trac­tion

PMI points to Q4 GDP growth of 0.3%

Kuwait Times - - BUSINESS -

LONDON:

Busi­ness ac­tiv­ity in the euro zone dur­ing Oc­to­ber was not as ro­bust as first thought, a sur­vey showed yes­ter­day, adding to signs the bloc’s re­cov­ery re­mains on track but is strug­gling to gain mo­men­tum. For the sec­ond month run­ning, firms held prices steady de­spite costs ris­ing at the steep­est rate since July 2015, in­di­cat­ing com­pa­nies’ pric­ing power re­mained muted and that the Euro­pean Cen­tral Bank might have to do more to drive up in­fla­tion.

Markit’s fi­nal com­pos­ite Pur­chas­ing Man­agers’ In­dex for the euro zone was 53.3 in Oc­to­ber, be­low a 53.7 flash es­ti­mate but beat­ing Septem­ber’s 52.6 and its high­est since Jan­uary.

The read­ing has been above the 50 mark that di­vides growth from con­trac­tion since mid-2013. “The econ­omy is tick­ing along but there is a lack of trac­tion and that tells you the ECB’s best ef­forts to stim­u­late the econ­omy haven’t worked yet,” said Peter Dixon at Com­merzbank.

Markit said the PMI pointed to fourth quar­ter economic growth of 0.3 per­cent, in line with the pre­dic­tion in a Reuters poll. A sta­ble but lack­lus­tre economic out­look will push the ECB to tweak its as­set pur­chase pro­gram and an­nounce by year-end an ex­ten­sion to it be­yond March 2017, a Reuters poll found last month. Years of ul­tra-loose mone­tary pol­icy has so far failed to get in­fla­tion any­where near the cen­tral bank’s 2 per­cent tar­get ceil­ing but the PMI showed in­put prices rose sharply, largely driven by higher staff costs and oil prices.

The in­put prices sub in­dex was 54.2, up from 53.5. In­fla­tion was just 0.5 per­cent in Oc­to­ber, the Euro­pean Union’s statis­tics of­fice said last week, while the fig­ure used by the ECB as core in­fla­tion dipped to 0.7 per­cent from 0.8 per­cent.

Pro­ducer prices rose 0.1 per­cent month-on-month in Septem­ber, of­fi­cial fig­ures showed ear­lier yes­ter­day. Although costs were ris­ing, firms in the bloc’s dominant ser­vice in­dus­try re­turned to dis­count­ing to drum up trade af­ter hold­ing prices steady last month. The out­put prices sub in­dex for the sec­tor was 49.7, down from Septem­ber’s 50.0 and the flash 50.3 es­ti­mate. Those price cuts helped drive ac­tiv­ity up from the pre­vi­ous month and the ser­vices PMI reg­is­tered 52.8, above Septem­ber’s 52.2 but be­low the 53.5 pre­lim­i­nary read­ing. — Reuters

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