Eurozone Business Activity Slows

Eurozone Business Activity Slows

Brussels (AFP) – Eurozone business activity slowed in October, coming off a 27-month high in September to highlight concerns the economy is recovering only slowly from recession, a survey showed on Thursday.

The closely-watched Composite Purchasing Manager’s Index (PMI) compiled by Markit Economics fell to 51.5 points in October from 52.2 in September.

Holding above the 50 points boom-bust line, the report suggests the 17-nation eurozone continued to expand at the start of the fourth quarter.

The eurozone escaped a record 18-month recession in the third with growth of 0.3 percent.

The question however is whether the recovery is at risk as the global economy shows no signs of a decisive turn for the better and with authorities, especially in Washington, trying to judge when they can best turn down the stimulus pump.

“The dip in the PMI … is clearly disappointing but it would be unwise to read too much into one month’s data,” Markit chief economist Chris Williamson said in a statement.

At the same time, it “will remind policymakers that a sustainable upturn is by no means assured” and will confirm the European Central Bank’s view that “the recovery is slow, uneven and fragile,” Williamson said.

“Attention is likely to be focused on whether the region requires more policy action to boost the recovery rather than on the timing of any withdrawal of stimulus,” he said.

The slowdown in October was driven by the services sector which typically accounts for 60 percent or more of a developed economy.

The eurozone Services PMI index fell sharply to 50.9 points in October from 52.2 in Sepember, while the Manufacturing PMI edged up to 51.3 points from 51.1.

Markit noted that activity slowed to a 3-month low — to 52.6 points from 53.2 — in Germany, Europe’s powerhouse economy, while Frrance fell to 50.1 from 50.5.

Other country readings were largely flat, it said.

Analysts said the report was disappointing after the relief that greeted the third-quarter growth figures but cautioned against too much doom and gloom at this stage.

The economy is moving along, albeit slowly, but that is still a major improvement compared with the depths of the debt crisis.

The “slightly disappointing results … are not enough to question the persistence of the recovery,” said Marie Diron, senior economic adviser to the EY Eurozone Forecast.

However, the report “highlights the fact that in a slow growth environment, setbacks will happen,” Diron said, noting that the outcome could have been coloured by the US debt ceiling crisis earlier this month which shut down the U.S. government.

For Christian Schulz at Berenberg Bank, the report largely left the “recovery on track,” highlighting a continued strong export performance.

Data this week from Spain showed forcefully how exports have helped the struggling economy, saddled with record high unemployment, finally turn the corner with a return to growth of 0.1 percent in the third quarter.

There has even been a slight improvement in the jobless rate, easing for a second successive quarter to 25.98 percent in the three months to September.

Schulz said the softness in the October PMI report is “likely to remain a blip. Fading fiscal austerity and continued accommodative monetary policy will support domestic demand.”

AFP Photo/Thomas Kienzle


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