Eurozone economy stuttering along as stimulus decision looms

AP News
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Posted: Mar 03, 2016 7:01 AM
Eurozone economy stuttering along as stimulus decision looms

LONDON (AP) — The eurozone economy is stuttering along.

That's the conclusion from economic reports Thursday that are likely to cement expectations that the European Central Bank will bolster its stimulus efforts in a week's time.

Financial information company Markit said its main gauge of business activity across the 19-country single currency bloc showed growth faltering for the second straight month. The so-called purchasing managers' index slipped to 53.0 points in February from 53.6 the month before.

Though the February rate was higher than the 52.7 initial estimate and remains above the 50 level that marks the threshold between expansion and contraction, it points to muted growth, particularly in France, the eurozone's second-largest economy. Markit estimates growth in the first quarter of this year could ease from the already "meagre" quarterly rate of 0.3 percent at the end of 2015.

"The slowdown in growth of business activity, accompanied by a similar easing in the pace of job creation and the steepest fall in prices charged for a year, suggest that the region's recovery is losing momentum," Williamson said.

"The broad-based disappointment ups the odds of the ECB acting aggressively to avoid another downturn," he added.

Separate figures from the European Union's statistics agency, Eurostat, showed retail sales in the region grew by a monthly rate of 0.4 percent in January. It's a modest uptick and provides further evidence that the region's consumers won't be driving economic activity enough to quickly reduce the region's unemployment rate, which is still high at 10.3 percent despite consistent falls over the past two years.

Neither the survey from Markit nor the Eurostat data are likely to ease concerns much about too-low inflation, which is ostensibly the ECB's main concern. Figures this week showed the eurozone's annual inflation rate fell below zero in February, to negative 0.2 percent, way short of the ECB's target of just below 2 percent.

ECB President Mario Draghi has consistently hinted at further measures over the past few weeks and the markets now expect some bold action at the central bank's meeting on March 10. Measures being touted include a further cut into negative territory of the rate the ECB pays banks on their deposits at the central bank. It currently stands at minus 0.3 percent, meaning banks have to pay to keep money at the ECB.

By keeping interest rates low and pumping money into the economy via its bond-buying program worth over a trillion euros, the ECB is hoping to generate enough economic activity to get prices rising.

The great concern is that the clouds over the eurozone, as well as over the global economy as a whole, have darkened over the past couple of months, largely because of unease over the economic slowdown in China.