Aggressive ECB policy fails to boost flagging eurozone firms

Aggressive new policy from the ECB has so far failed to boost ailing eurozone business, according to surveys that showed a widening chasm between sickly France and a more resilient Germany.

Yesterday’s purchasing managers indexes (PMIs), which survey thousands of companies globally every month, also showed Chinese factory activity wilted for an 11th month in September, as Europe’s troubles continued to hit Asian exporters.

While the downturn in Europe’s largest economy, Germany, eased by a surprising amount this month, French firms fell deeper into the mire in September — and at a far faster rate than expected.

A good indicator of economic performance, the composite eurozone PMI fell to 45.9 in September from 46.3 in August.

Below 50 denotes contraction and survey compiler Markit said the surveys were consistent with a roughly 0.6% economic contraction in the third quarter.

There was little sign that the ECB’s plan to buy the debt of troubled eurozone states, announced on Sept 6, has boosted confidence among service sector firms — at least so far.

“The fall in the PMI is another reminder that the ECB’s new asset purchase programme is not an answer to all of the region’s problems,” said Ben May, European economist at Capital Economics. “The eurozone recession looks set to deepen in the latter part of the year.”

European shares fell yesterday after the data, which pushed the euro further away from last week’s four-and-a-half-month high, hitting a low of $1.294.

While eurozone manufacturers performed slightly better than economists hoped this month, the downturn in the dominant services industry intensified sharply.

The eurozone services PMI fell to 46.0 in September from 47.2 in August, below even the most pessimistic forecast of 46.5 in a Reuters poll of nearly 40 economists.

The surveys backed the growing view the ECB will cut its main interest rate at its next meeting in October, to a new record low 0.5% from 0.75%.

“Further macroeconomic stimulus, including a weaker euro and an ECB rate cut, is likely to be needed to put the region on a path of sustained growth and hence ensure the survival of (the eurozone),” said Martin van Vliet, economist at ING.

The final PMIs for September, which include the individual data surveys for smaller eurozone economies and Britain, are released at the start of October.

France represented by far the biggest disappointment of PMIs, as both its manufacturing and services PMIs fell beneath the lowest economists’ forecasts.

— Reuters