France the fly in the business activity soup

EURO ZONE business activity accelerated at its fastest pace in more than four years last month, according to surveys that highlighted an ongoing divergence between laggard France and the other big economies in the currency bloc.

A generally upbeat set of surveys will provide some welcome news for the European Central Bank (ECB), although they still only point to modest third-quarter gross domestic product growth considering near zero interest rates and the ECB’s massive stimulus programme.

The data, which came as official numbers showed retail sales rose less than expected in July, point to growth of about 0.4 percent in July to September, survey compiler Markit said. That rate is likely to be sustained in coming quarters, according to a poll on the longterm outlook a few weeks ago.

“The upwards momentum that the euro zone economy had has started to fizzle out, growth no longer seems to be accelerating,” said Nick Kounis, the head of macro and markets research at ABN Amro. “There is a significant and rising risk that the ECB takes further action, maybe as early as today’s (yesterday’s) meeting.”

Although most economists expected no policy change at the ECB’s meeting late yesterday, many saw a growing chance its € 1 trillion (R15 trillion) asset purchase programme would eventually be extended beyond a planned completion date of September 2016.

Markit’s final August Composite purchasing managers’ index (PMI) beat an earlier estimate of 54.1 points, settling at 54.3 – its highest level since May 2011. In July it registered 53.9 points and has now been above 50, which denotes expansion, since July 2013.

Italian firms had their best performance since early 2011 and German growth strengthened. Spain’s PMI also soared, but it was a different story in France, the bloc’s second biggest economy, where the composite PMI slumped to its lowest since the start of the year. Retail sales rose 0.4 percent across the 19 nations using the euro in July, Eurostat said earlier, less than the 0.6 percent pick-up predicted in a poll.

Markets have see-sawed in recent days, but were relatively calm yesterday, ahead of the ECB meeting and US jobs data due today, which could be a major factor in determining whether the Federal Reserve raises interest rates later this month.

Britain’s services sector recorded its weakest growth in more than two years last month. – Reuters