Weekend Argus (Saturday Edition)
Europe not out of woods
Business grows in euro zone, but companies cut prices
LONDON: Business activity picked up more than expected in the euro zone in October, buoyed by Germany and France, but with no sign of healthy price increases.
Survey data released yesterday should be welcomed by the European Central Bank, coming more than six months after it embarked on a trillion-euro quantitative easing programme to try to boost growth in the bloc.
What will disappoint policymakers, however, was the way companies cut prices again, after holding them steady in September and increasing them for the first time in more than three years during August.
The money- printing programme is also designed to lift inflation.
“The survey suggests that the euro zone recovery’s modest pace continued into (the current quarter). But growth is still too slow to generate inflation and adds further support to our view that the ECB will increase the pace of its monthly asset purchases,” said Jessica Hinds at Capital Economics.
Consumer prices fell in the euro zone in September, coming in at minus 0.1 percent.
The ECB, which wants to see inflation just below 2 percent, left monetary policy unchanged at its meeting on Thursday but said in December it would review what more it could do to tackle the threat of weak prices and growth.
Inflation is seen staying barely above zero this year and still missing the bank’s target for the next two years, an ECB survey showed. The prospect of another big stimulus round pushed world stocks to a twomonth high and the euro to a two-month low yesterday.
Markit’s euro zone Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies, came in at 54.0 this month, up from September’s 53.6 and above even the most optimistic forecast in a Reuters poll, which predicted a dip to 53.4.
The index has been above the 50 mark that separates growth from contraction since July 2013 and Markit said the survey pointed to fourth quarter economic growth of 0.4 percent, in line with a Reuters poll last week.
Germany’s private sector grew for a 30th month running in October, suggesting Europe’s largest economy got a solid start to the fourth quarter despite concerns about the Volkswagen scandal and a slowdown in China.
Activity among French firms accelerated.
But some of that boost came from firms cutting prices again, with the euro zone composite output price index dipping back below break-even.
Still, the discounting helped the overall services PMI jump to 54.2 from 53.7, confounding expectations in a Reuters poll for a fall to 53.5. A sister survey covering manufacturers held steady at September’s 52.0, also beating the median forecast.
A factory output index, which feeds into the composite PMI, dipped to 53.3 from 53.4 but manufacturers appeared to benefit from a weaker euro – it has weakened by 7 percent this year – as the new export orders index rose to a four-month high of 52.6. – Reuters