Related topics

Eurozone survey points to pick-up despite France

December 16, 2013

LONDON (AP) — Fears that the recovery in the 17-country eurozone has stalled eased Monday after a survey showed business sentiment across the region rising for the first time in three months despite renewed weakness in the French economy.

The monthly composite purchasing managers’ index, known as PMI, for the eurozone from financial information company Markit rose to a three-month high of 52.1 in December from 51.7 in November. The increase took the index, where anything about 50 indicates expansion, close to the 27-month peak seen in September.

Chris Williamson, Markit’s chief economist, said Monday the rise is a “big relief and puts the recovery back on track.” The rise, he added, means that over the final quarter of the year, businesses saw their strongest growth since the first half of 2011, just before the eurozone slipped back into its longest-ever recession amid widespread debt problems among the 17 European Union countries that use the euro.

Since the recession ended, the eurozone has grown for two straight quarters but the recovery has been unspectacular — in the third quarter the eurozone only grew by 0.1 percent from the previous three-month period. That corresponds to an annualized rate of around 0.4 percent, way down on the U.S.’s 3.6 percent.

Though Markit thinks the fourth quarter may see the rate of growth double, its headline index masks worrying developments, particularly over the state of France, which saw its PMI fall to a seven-month low of 47.0 in December from 48.0 the previous month.

Williamson said Europe’s second-largest economy could fall back into recession following its 0.1 percent quarterly contraction in the third quarter. A recession is commonly defined as two straight quarters of negative growth.

“It’s the unbalanced nature of the upturn among member states that is the most worrying,” said Williamson. “France looks increasingly like the ‘new sick man of Europe.’”

Overall, the survey may ease the immediate pressure on the European Central Bank to do more to shore up the recovery despite below-target inflation and ongoing budget restraints in a number of economies, such as Greece, Spain and Italy.

However, with growth likely to remain modest over the months ahead, many analysts think the bank will need to do more. Though the bank has little room to cut its benchmark interest rate following last month’s reduction to a record low of 0.25 percent, the ECB has other potential tools at its disposal.

It could give banks more long-term, cheap loans so they can lend more. It could even decide to make banks pay to keep funds on deposit at the central bank — again, to encourage them to lend rather than hoard cash.

Mario Draghi, the ECB’s president, said Monday that the bank continues to expect its key interest rates to remain at present, or lower, levels, for an extended period of time.

“Thus, monetary policy will remain accommodative for as long as necessary,” he told the European Parliament’s committee on Economic and Monetary Affairs in Brussels.

While noting that it takes time for policy decisions to work their way through markets and affect the wider economy, Draghi said the ECB is “ready and able to act if needed” in the event that a protracted period of low inflation entails.

The November rate cut was largely predicated on the fact that consumer price inflation unexpectedly fell to 0.7 percent in the year to October. That was way below the ECB’s target of keeping price rises just below 2 percent. The latest count saw inflation edge back up to 0.9 percent in the year to November.

Update hourly