Euro zone factory PMI falls to one-year low

[LONDON] Euro zone manufacturing activity expanded at its weakest pace for a year last month as deep price discounting failed to put a floor under slowing order growth, a survey showed on Tuesday.

Although the overall expansion was slightly better than previously thought, Markit's Purchasing Managers' Index (PMI) will make gloomy reading for the European Central Bank, coming little more than a week before its next policy setting meeting. "Concerns are growing that the region is facing yet another year of sluggish growth in 2016, or even another downturn. Lacklustre domestic demand is being compounded by a worsening global picture," said Chris Williamson, Markit's chief economist.

Markit's manufacturing PMI for the euro zone dropped to 51.2 from January's 52.3. That was slightly better than an earlier flash estimate of 51.0 and above the 50 mark that separates growth from contraction.

A sub-index measuring output, which feeds into Thursday's composite PMI and is seen as a good growth barometer, also fell to a one-year low. It registered 52.3 compared to January's 53.4, up from the 51.9 flash estimate.

Worryingly for policymakers, the slowdown came as factories cut prices at the steepest rate since mid-2013 - the output price index slumped to 47.6 from 48.3. Input prices fell at their fastest rate since July 2009.

The ECB wants inflation near 2 per cent but prices across the bloc fell 0.2 per cent last month, short of already depressed expectations and virtually ensuring another round of policy easing.

An additional cut to the ECB's deposit rate is almost certain on March 10 and there is an even chance the central bank increases the size of its 60 billion euro a month bond buying programme, a Reuters poll found last month. "With all indicators - from output and demand to employment and prices - turning down, the survey will add pressure on the ECB to act quickly and aggressively to avert another economic downturn," Mr Williamson said.


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