Falling PMIS show ECB debt plan is no cure

AGGRESSIVE new policy from the European Central Bank (ECB) has so far failed to boost ailing euro zone business, according to surveys that showed a widening chasm between sickly France and a more resilient Germany.

Yesterday’s purchasing managers indices (PMIs), which survey thousands of companies worldwide every month, also showed Chinese factory activity wilted for an 11th month in September, as Europe’s troubles continued to hit Asian exporters.

That looks unlikely to improve soon. While the downturn in Europe’s largest

Rate cut expected as German resilience fails to prevent euro zone slump economy, Germany, eased by a surprising amount this month, French firms fell deeper into the mire in September – and at a far faster rate than expected.

A good indicator of economic performance, the composite euro zone PMI declined to 45.9 points in September from 46.3 in August.

Below 50 denotes contraction and survey compiler Markit said the surveys were consistent with a roughly 0.6 percent economic contraction in the third quarter.

There was little sign that the ECB’s plan to buy the debt of troubled euro zone states, announced on September 6, has boosted confidence among service sector companies – at least so far.

“The fall in the PMI is another reminder that the ECB’s new asset purchase programme is not an answer to all of the region’s problems,” said Ben May, a European economist at Capital Economics, in a research note. “The euro zone recession looks set to deepen in the latter part of the year.”

European shares fell yesterday after the data, which pushed the euro further away from last week’s four-and-ahalfhigh, hitting a low of $1.294 (R10.6272).

While euro zone manufacturers performed slightly better than economists hoped this month, the downturn in the dominant services industry intensified sharply.

The euro zone services PMI fell to 46 in September from 47.2 in August, below even the most pessimistic forecast of 46.5 in a poll of almost 40 economists.

The surveys backed the growing view that the ECB will cut its main interest rate at its next meeting in October, to a new record low 0.5 percent from 0.75 percent currently.

“Further macroeconomic stimulus – including a weaker euro and an ECB rate cut – is likely to be needed to put the region on a path of sustained growth and hence ensure the survival of (the euro zone),” said Martin van Vliet, an economist at ING.

The final PMIs for September, which include the individual data surveys for smaller euro zone economies and Britain, are released at the start of October.

France represented by far the biggest disappointment of yesterday’s PMIs, as both its manufacturing and services PMIs fell beneath the lowest forecasts from 20 economists.

“The sharp decline is somehow surprising as industrial production held up relatively well over the summer and we expected the positive news flow on the development of the euro zone crisis to be supportive in September,” said Annalisa Piazza, an economist at New Edge Strategy.

Conversely, both the manufacturing and service sector PMIs for Germany came in above the cheeriest prediction from a sample of almost 30 economists.

“Whether or not that will last is the big question. We’re not altogether hopeful about that,” said Chris Williamson, the chief economist at PMI compiler Markit.

In Britain, suffering its own economic slump, retail sales ticked down in August, driven by a slump in online sales as Britons watched the Olympics on television, data showed yesterday.

The huge economic uncertainty in Europe has had a pronounced impact on exportreliant economies like China, where manufacturing contracted again in September.

EU and Chinese leaders were meeting in Brussels yesterday to try to bridge growing differences over trade and find common ground on tackling Europe’s debt crisis. – Reuters