ECB under fresh pressure to boost eurozone as growth tails off

European Union

Leading shares in London have suffered their biggest daily fall since early March, closing down 97 points after companies across Europe reported growth was slowing and they were continuing to slash prices.

The FTSE 100, where supermarket shares were still reeling from Tesco’s problems, lost 1.4% to close at 6676.08 after the latest downbeat news from the single currency bloc combined with worries over air strikes in Syria.

The latest snapshot of eurozone business activity will heap pressure on the European Central Bank to step up its help for the struggling economy after it showed further contraction in France and a slowdown for manufacturers in the bloc’s largest economy, Germany.

With growth tailing off and inflation worryingly low, the ECB has already cut lending and deposit rates and announced a bond-buying programme earlier this month.

Despite the raft of measures from ECB chief Mario Draghi, business activity grew at the slowest pace seen so far this year, according to the Markit Flash Eurozone Composite PMI survey of 5,000 manufacturing and service-sector companies.

At 52.3 in September, down from 52.5 in August, the activity index was still above the 50 mark that shows growth, but it defied expectations of no change in a Reuters poll of economists.

“The survey paints a picture of ongoing malaise in the eurozone economy. With growth of output and demand slowing, employment once again failed to show any meaningful increase. Such torpor meant prices continued to fall as firms fought for customers, which will inevitably heighten concerns that the region is facing deflation,” said Chris Williamson, chief economist at survey compilers Markit.

“The survey data suggest GDP is on course to grow by 0.3% at best in the third quarter, buoyed by a 0.4% expansion in Germany, but dragged down by stagnation in France and sluggish growth in the rest of the region.”

Growth picked up slightly for German businesses from the 10-month low seen in August, but faster expansion in the service sector was countered by growth all but grinding to a halt in Germany’s factories. The manufacturing PMI (purchasing managers’ index) report for the country signalled the weakest expansion since July 2013 as new orders fell for the first time in more than a year.

France’s private sector continued to contract for the fifth month running.

“The latest PMI data are testimony to the lacklustre nature of the eurozone’s economic recovery,” said Martin van Vliet at ING Financial Markets. He said the survey was pointing to quarterly GDP growth of 0.2%. “So the economy retains some forward momentum. But growth momentum is very weak,” he said.

Markit said that employment taken for the eurozone private sector as a whole was largely unchanged as companies held back from hiring extra staff due to the weak sales growth.

Williamson flagged up headwinds for companies from the Ukraine crisis and related Russian sanctions, in addition to domestic economic challenges facing eurozone countries.

“The danger is that the ECB’s efforts to stimulate the economy will prove ineffective in the face of such headwinds, which are exacerbating already-weak demand,” he said.

Powered by Guardian.co.ukThis article was written by Katie Allen and Graeme Wearden, for The Guardian on Tuesday 23rd September 2014 19.08 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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