Eurozone business growth waning in Dec despite more price cuts: PMI

[LONDON] Eurozone businesses ended the year on a glum note with growth slowing despite more price cutting, suggesting the European Central Bank's loose monetary policy is still not having much effect, a survey showed on Wednesday.

The ECB eased policy again earlier this month, cutting its deposit rate and extending an asset-buying programme, and Bank President Mario Draghi said on Monday inflation should reach its 2 per cent target ceiling "without undue delay".

But that easing fell short of market expectations and the latest PMI survey showed firms cut prices for a third month as they struggle to generate meaningful growth. "I'm sure everyone would have liked to see stronger growth than this, and it's perhaps an indication that quantitative easing isn't having the effect one would have hoped. More needs to be done," said Chris Williamson, chief economist at survey compiler Markit.

Markit's Composite Flash Purchasing Managers' Index (PMI) for the euro zone, based on surveys of thousands of companies and seen as a good guide to growth, slipped to 54.0 from November's 54.2.

While a Reuters poll had suggested it would hold steady at November's level, it has been above the 50 mark that separates growth from contraction since July 2013.

Mr Williamson said the PMI pointed to fourth quarter economic growth of 0.4 percent, in line with a Reuters poll published last week.

Prices rose just 0.1 percent in November, official data showed earlier this month, and worryingly for policymakers the composite output price index was below 50 for a third month, holding steady at 49.5.

Despite the price cutting, a PMI covering the bloc's dominant service industry fell to 53.9 from November's 54.2. But firms were more optimistic about the coming year. The business expectations sub-index climbed to a four-month high of 63.0 from 62.4.

Manufacturers had a better end to the year than expected. Their PMI rose to a 20-month high of 53.1, confounding forecasts for it to hold steady at November's 52.8.

The output index, which feeds into the composite PMI, jumped to 54.4 from 54.0, also a 20 month high.

Growth was driven by new orders coming in at their fastest rate since early 2014 - the sub-index rose to 54.0 from 53.5 - with demand picking up as a weaker euro made manufactured goods cheaper abroad. "Firms are benefiting from the weakened euro, it's boosting the economy. Manufacturing is coming back to life and helping support what we have in the way of service sector growth," Mr Williamson said.


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