Monday 11 December 2017

Global recovery pauses in November, euro zone divergence deepens

Global growth was modest and a tepid expansion in the euro zone masked a growing disparity among its key members last month, data showed today

A buoyant Germany was not enough to stop the 17-nation euro zone's private sector losing momentum in November, dragged backwards by a downturn in France - the bloc's second biggest economy - and a continued recession in Italy.

Britain, which does not use the euro, broke a run of upside data surprises but still provided a strong economic backdrop for a twice-yearly government budget update due later this week.

Still, the data from across Europe echoed an earlier Chinese survey that pointed to steady growth in November.

"It's steady as she goes, but that's not a bad thing. We can look forward to 2014 with a lot more optimism than at any time in the past several years because many of the shoes that we were waiting to drop haven't," said Peter Dixon at Commerzbank. "It could be better but it could be a lot worse."

Markit's November Eurozone Composite Purchasing Managers' Index (PMI), which monitors activity at thousands of firms across both the services and manufacturing industries, slipped to 51.7 from 51.9 in October.

That did, however, mark an improvement on an initial estimate of 51.5 and was the fifth straight month above the 50 mark that divides growth from contraction.

Britain's services PMI fell to a still very strong 60.0, its fifth highest reading since December 2006 - and all of the better ones have been since June this year.

In a further indication of strength, China's HSBC/Markit services PMI stood little changed at 52.5 in November, although a moderation of new business and prices-charged growth suggests the underlying momentum has started to soften.

Beijing has embarked on a sweeping restructuring drive and world's second biggest economy has regained some momentum since mid-year after a protracted slowdown.

Any positive news will reinforce the government's hand as it pushes ahead with an ambitious agenda of reshaping the economy to boost domestic consumption at the expense of the traditional drivers of exports and investment.


The euro zone as a whole escaped from its longest recession earlier this year, supported by stronger-than-expected growth in Germany. But a Reuters poll last month said it would grow a paltry 0.2pc this quarter.

Markit said its latest data pointed to the same rate of growth but warned that France's PMI raised the possibility the country would slide back into recession. The Italy PMI suggested its downturn would extend into a 10th quarter.

For Germany, Europe's biggest economy, the story was different. The composite index jumped to a 29-month high as firms took on more staff to meet the orders flooding in. Spain's service PMI bounced back comfortably above 50.

"The German economy proves to be - again - the main engine of growth for the euro zone economy. The massive divergences between the main euro zone economies remains discouraging," said Annalisa Piazza at Newedge Strategy.

The growing divergence will complicate the debate at the European Central Bank when it meets to set policy on Thursday. Last month it unexpectedly cut its key interest rate to a record low of 0.25pc after inflation fell close to a four-year low of 0.7pc in October.

While inflation picked up slightly last month, it is still well below the ECB's below-but-close-to 2pc target ceiling and the PMI data showed firms are still cutting prices to drum up business.

The euro zone services output price index also showed inflation pressures easing, dropping to 47.9 from 48.5.

"Although we expect the ECB to keep its remaining monetary powder dry tomorrow, President Mario Draghi is likely to reaffirm the ECB's easing bias, for example, by reiterating that the region may experience a prolonged period of low inflation," said Martin van Vliet at ING.



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