Eurozone risks renewed slowdown

The eurozone economy risks a renewed slowdown. A Purchasing Managers Index for factories and services activity unexpectedly fell to 51.4 in November, the lowest in 16 months, from 52.1 in October, London-based Markit Economics said. A reading above 50 indicates expansion.

A German measure also declined, and a separate report showed weakness in China, where a factory gauge dropped to a six-month low. While unprecedented stimulus by the ECB will start to take effect in coming months, weak growth in Germany and France and rising tensions in Ukraine threaten the eurozone’s modest revival. The 18-nation economy expanded 0.2% in the third quarter.

“New monetary stimulus is only a matter of time,” said Marco Valli, chief eurozone economist at UniCredit in Milan. “Today’s data tilt the balance toward the ECB announcing new easing measures already at the December meeting.”

Economists surveyed by Bloomberg News had predicted that the eurozone PMI would increase to 52.3. Chris Williamson, chief economist at Markit, said the decline “raises the risk of the region slipping back into a renewed downturn.”

“The deteriorating trend in the surveys will add to pressure for the ECB to do more to boost the economy without waiting to gauge the effectiveness of previously-announced initiatives,” he said.

The central bank will start buying asset-backed securities this week as part of stimulus plans that already include covered-bond purchases, long-term loans to banks and record-low interest rates.

President Mario Draghi said this month that officials have been tasked with preparing new measures to be deployed should the outlook worsen. Inflation in the euro area was 0.4% in October, up from September’s 0.3%, though still far from the ECB’s goal of just under 2%.

While Markit said companies continued cutting prices, a trend that has been under way since April 2012, the rate of decline slowed in November. The factory PMI for China fell to 50.0 in November from 50.4 in October, Markit and HSBC Holdings Plc said separately. That was below the median estimate of 50.2 in a Bloomberg survey. In the euro region, a gauge of manufacturing fell to 50.4 in November from 50.6 in October, the report showed, while a services index declined to 51.3 from 52.3.

German manufacturing and services expanded at the slowest pace in 16 months, signaling that growth in Europe’s largest economy is poised to remain sluggish. French manufacturing continued shrinking as demand fell.

Bloomberg