Thursday 8 December 2016

Euro zone September business growth at four-month low: PMI

Published 05/10/2015 | 13:00

President of the European Central Bank Mario Draghi. Ralph Orlowski
President of the European Central Bank Mario Draghi. Ralph Orlowski

Euro zone business activity grew at its weakest pace in four months during September but in one encouraging sign for the European Central Bank, service firms raised prices for the first time in four years, surveys showed on Monday.

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The data point to modest third-quarter growth of 0.4 percent, survey compiler Markit said, and are likely to largely disappoint policymakers, six months into the ECB's 60 billion euros a month quantitative easing program.

Britain's economy, which has been outpacing the euro zone's, is also losing steam, with service industry growth at a 2-1/2-year low, likely rattling the Bank of England as its Monetary Policy Committee meets to discuss interest rates this week.

"The euro area is broadly as expected. For the region overall we are seeing the economy ticking along at a reasonable pace, it's not blistering," said Sarah Hewin, chief economist for Europe at Standard Chartered.

"Of the two sets of releases the surprise has come from the UK. It is something of a concern going into the fourth quarter."

Markit's final September Composite Purchasing Managers' Index (PMI) for the euro zone came in at a four-month low of 53.6, weaker than an earlier estimate of 53.9.

In August, it was 54.3 but has now been above the 50 mark denoting expansion since July 2013 and there were tepid signs of inflationary pressure.

However, new orders rose at a much slower pace than first reported and fewer new jobs were created, suggesting firms were growing increasingly downbeat.

The PMI for the dominant service industry dipped as well, settling at 53.7 from August's 54.4 and lower than a flash estimate of 54.0. A similar survey of manufacturing firms released on Thursday had also fallen, to 52.0 from 52.3.

An earlier composite PMI from Germany, Europe's biggest economy, fell as did those out of Italy and Spain. France's composite reading bucked that trend and rose, pointing to 0.2 percent growth in the third quarter, according to Markit.

Euro zone retail sales were unchanged in August from July, slightly better than the 0.1 percent decline expected by economists in a Reuters poll. Britain's headline services PMI dropped to 53.3 in September from August's 55.6, its lowest since April 2013 and well below any forecast in a Reuters poll of economists. The expectations component was its lowest since August 2014.

"This is undeniably a disappointing survey all round that can only fuel concern over the UK economy's current soft patch, especially given the services sector's dominant role," said Howard Archer at IHS Global Insight.

"It is hard to take any positives from this report and it will certainly fuel expectations that the Bank of England will not be hiking interest rates until well into 2016."

The BoE is still expected to raise interest rates from a record low 0.5 percent early next year but that prediction now rests on a knife's edge after the U.S. Federal Reserve delayed its first hike, a Reuters poll found last week.

While economists have been focusing on how soon the Fed and BoE begin tightening their ultra-loose monetary policy there have been increasing expectations ECB officials will go the other way and loosen policy further.

Several ECB policymakers, led by President Mario Draghi, have publicly hinted the trillion-euro stimulus program could be increased or extended if inflation is seen failing to rise toward the central bank's near 2 percent target.

A Reuters poll last month predicted the ECB would officially extend its asset purchase program beyond September 2016 in yet another attempt to drive up inflation and rekindle growth and those calls probably grew louder after official data showed euro zone inflation slipped below zero again in September.

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