Euro zone business grows at slowest pace in Aug this year

Sep 04 2014, 01:49 IST
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SummarySigns of slower growth, coupled with firms cutting prices at an even faster rate, will add to pressure on the European Central Bank ahead of its monetary policy meeting on Thursday.

Euro zone business grew at the slowest rate this year in August as escalating tension between Russia and Ukraine subdued spending and investment, surveys showed on Wednesday.

Signs of slower growth, coupled with firms cutting prices at an even faster rate, will add to pressure on the European Central Bank ahead of its monetary policy meeting on Thursday. Markit’s Composite Purchasing Managers’ Index, which is based on surveys of several companies and is seen as a good gauge of growth, fell to an eight-month low of 52.5, well below July’s 53.8.

That final reading was weaker than a preliminary estimate of 52.8, although it was above 50, whhich denotes growth. Growth in Germany, Europe’s powerhouse, eased to a 10-month low while activity declined for a fourth month in France. “The euro zone economy is defying expectations of gaining momentum, which will no doubt add to calls for the ECB to embark on full-scale quantitative easing,” said Chris Williamson, chief economist at Markit. Talks of the ECB preparing to buy assets spiked after bank president Mario Draghi said last month the bank was prepared to respond with all its available tools if inflation — which was just 0.3% in August — dropped further. The composite output price PMI, which has been sub-50 since April 2012, fell to a three-month low of 48.9 from July’s 49.0 as firms cut prices to drum up trade. A Reuters poll of economists last week gave a median 75% chance the ECB will launch a quantitative easing programme by March, buying asset-backed securities in a bid to prevent deflation and jumpstart economic growth.

Growth in the bloc’s economy stalled in the second quarter and service firms’ optimism about the future fell to a year-low amid rising tension over Ukraine that has triggered sanctions from the West and counter-measures from Russia.

The business expectations subindex experienced its biggest one-month fall since the tail end of the financial crisis, sinking to 58.5 from July's 61.7. “Ukraine is clearly having an impact on confidence, subduing business spending and investment,” Williamson said. An overall PMI for the dominant service industry fell to 53.1 from 54.2 in July, below the preliminary 53.5.

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