Tags: europe | euro zone | recovery | manufacturing

Euro-Area Recovery Loses Pace as Manufacturing Weakens

Thursday, 20 February 2014 08:19 AM

The euro-region recovery showed signs of cooling this month, with weaker-than-forecast manufacturing and services keeping pressure on the European Central Bank to loosen policy.

The factory gauge for the euro region unexpectedly slipped to 53 from 54 in January, while the services measure rose less than estimated to 51.7 from 51.6, Markit Economics said. A composite gauge fell to 52.7 from 52.9. The figures follow a report from China showing manufacturing growth slowed to the least in seven months.

While the euro-area economy is forecast to post full-year growth in 2014 for the first time in three years, the recovery remains at risk because of near-record unemployment and subdued price pressures. European Central Bank officials are debating whether they should ease policy further because inflation is less than half the 2 percent the ECB defines as price stability.

“While the recovery continues, it is still struggling to gain enough pace to solve the region’s debt problems or erode the ample spare capacity in the economy,” said James Howat, an economist at Capital Economics Ltd. in London. “The ECB is likely to loosen policy further to combat disinflationary pressures, perhaps as early as its next meeting.”

Economists had forecast that the euro-area factory measure would stay at 54 in February and the services index would rise to 51.9.

China Weakness

In China, a manufacturing index fell to the lowest level in seven months, adding to challenges for Communist Party officials grappling with risks to the financial system from trust defaults and soured loans. The gauge by HSBC Holdings Plc and Markit dropped to 48.3 in February from 49.5 in January. That’s lower than the 49.5 median estimate in a Bloomberg survey.

The MSCI Asia Pacific Index of stocks slid 1.3 percent today and the Stoxx Europe 600 Index declined 0.5 percent.

Markit’s report for Germany, Europe’s biggest economy, showed that a manufacturing index fell more than economists forecast in February, dropping to 54.7 from 56.5. A services index increased to 55.4 from 53.1 and a composite index rose to 56.1, a 32-month high.

In France, both manufacturing and services gauges unexpectedly declined, with the latter at a nine-month low.

The euro fell against the dollar after the French survey was published and was down 0.3 percent at $1.3695 as of 10:35 a.m. London time.

Subdued Inflation

Separate data showed inflation in France at 0.8 percent in January, below the 0.9 percent median forecast of economists surveyed by Bloomberg. Excluding food and energy, prices rose just 0.1 percent in January from a year earlier.

German producer prices fell 1.1 percent in January from a year earlier, the Bundesbank said.

Markit said that output prices in the euro area fell for a 23rd month in February, though the decline was “only marginal.”

“Some companies also cited the need to pass higher costs on to customers,” it said. “Input prices increased for the ninth consecutive month, albeit showing the smallest rise since last September.”

While both euro-area economic confidence increased in January and European new car sales rose for a fifth month running, the employment picture within the region remains bleak: the jobless rate for December stood at 12 percent; for youths it was 23.8 percent.

Draghi Dilemma

In a Bloomberg survey this month, economists disagreed as to whether the ECB could ease policy further next month. At the most recent meeting, when officials kept the interest rates at a record low, President Mario Draghi cited the “complex picture” of the economy and the “need to get more information.”

Gilles Moec, European economist at Deutsche Bank AG in London, said the data provide “fodder for everyone” and may not give the ECB the clarity it needs.

“You’ve got a small dip in the composite PMI, which could be read as a sign that the speed of the recovery has plateaued or you can say it’s the continuation of the recovery with a few wobbles,” he said on Bloomberg Television. “This wish-washy data flow is an issue for the ECB. You could feel last month how hard it was for them to make a decision, waiting for the data to clarify. Well, the data really isn’t clarifying.”

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The euro-region recovery showed signs of cooling this month, with weaker-than-forecast manufacturing and services keeping pressure on the European Central Bank to loosen policy.
europe,euro zone,recovery,manufacturing
Thursday, 20 February 2014 08:19 AM
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