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Euro zone business growth struggles to gain traction: PMI

[LONDON] Business activity in the euro zone last month was not as robust as first thought, a survey showed on Friday, adding to signs the bloc's recovery remains on track but is struggling to gain momentum.

For the second month running, firms held prices steady despite costs rising at the steepest rate since July 2015, indicating companies' pricing power remained muted and that the European Central Bank might have to do more to drive up inflation.

Markit's final composite Purchasing Managers' Index for the euro zone was 53.3 in October, below a 53.7 flash estimate but beating September's 52.6 and its highest since January. The reading has been above the 50 mark that divides growth from contraction since mid-2013. "The weaker than previously indicated expansion in October raises doubts about whether the euro zone is breaking out of the sluggish growth phase seen throughout much of this year," said Chris Williamson, chief business economist at IHS Markit. "The October PMI signals a mere 0.3 per cent GDP growth rate, suggesting the fourth quarter could see growth unchanged on that seen in the second and third quarters despite the ECB's further efforts to stimulate the economy." A stable but lacklustre economic outlook will push the ECB to tweak its asset purchase programme and announce by year-end an extension to it beyond March 2017, a Reuters poll found last month.

Years of ultra-loose monetary policy has so far failed to get inflation anywhere near the central bank's 2 per cent target ceiling but the PMI showed input prices rose sharply, largely driven by higher staff costs and oil prices.

The input prices sub index was 54.2, up from 53.5.

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Although costs were rising, firms in the bloc's dominant service industry returned to discounting to drum up trade after holding prices steady last month. The output prices sub index for the sector was 49.7, down from September's 50.0 and the flash 50.3 estimate.

Those price cuts helped drive activity up from the previous month and the services PMI registered 52.8, above September's 52.2 but below the 53.5 preliminary reading.


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