Wednesday 22 November 2017

Eurozone loses momentum in recovery effort

Andy Bruce

THE eurozone's economic recovery lost a little momentum last month, according to surveys that showed only modest growth in German and French businesses.

Data from non-eurozone Britain impressed again, however, and German industrial orders jumped, underlying the uneven nature of overall European recovery.

Yesterday's purchasing managers' indexes (PMIs) from Markit showed the pace of growth in eurozone businesses slipped last month, although not nearly as badly as first projections.

Taken as a whole, the indexes pointed to fragile economic growth that will do little to ease the pressure on the European Central Bank to take some action, although not perhaps at its policy meeting on Thursday.

With surprisingly low inflation last month, speculation in markets and among economists has grown that the ECB is primed to stimulate the economy again – perhaps next month.

"Our view is that rates will remain on hold tomorrow although we expect that ECB President (Mario) Draghi will 'disclose' that a rate cut was considered," said analysts at Rabobank, after the PMIs.

Financial markets also question what effect a straightforward interest rate cut would have given that rates are already at record lows.

Overall, the tone of the data yesterday was mixed. German industrial orders rose at a far faster pace than expected in September, but eurozone retails sales slipped more than predicted during the same month.

By contrast, British indicators added to evidence the UK is spearheading Europe's recovery from recession.

UK industrial output in September came in much better than the Reuters consensus, following on from Tuesday's upbeat business surveys.

The Bank of England is not expected to change policy, having said it will keep interest rates at their record low until unemployment falls to 7pc.

Economists expect the Bank to bring forward its expectation for when that will happen – currently late 2016 – when it publishes new forecasts next week.

Markit's October Eurozone Composite Purchasing Managers' Index (PMI) of activity in both the services and manufacturing sectors slipped to 51.9 in October from 52.2 in September. That marked an improvement on an initial estimate two weeks ago of 51.5, however.

The PMI for the services sector, covering thousands of firms across the eurozone from major banks to hairdressers, slipped to 51.6 from September's 52.2. Again, that was higher than the preliminary reading of 50.9. Readings above 50 indicate expansion in activity. (Reuters)

Irish Independent

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