Growth slowdown spurs call for ECB stimuli

A gauge of euro-area services and manufacturing signaled economic growth slowed in the final quarter of 2014, supporting calls for more stimulus by the European Central Bank.

A Purchasing Managers’ Index for both industries rose to 51.4 from 51.1 in November, London-based Markit Economics said.

While that’s above the 50 mark that divides expansion from contraction, the reading falls short of a preliminary reading of 51.7 published on December 16.

The data suggest the euro- area economy expanded 0.1% in the fourth quarter, Markit said.

“The eurozone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015,” said Chris Williamson, chief economist at Markit. “The weakness of the PMI in December will add to calls for more aggressive central-bank stimulus.”

ECB officials gathering in Frankfurt today may discuss proposals for quantitative easing and the institution’s response to Greek elections three days after a January 22 monetary-policy meeting.

President Mario Draghi has signalled support for large-scale government bond purchases, while governors, including Bundesbank President Jens Weidmann, favour not acting at this time.

The ECB is working on a discussion paper on different forms of QE and may offer governors three options to choose from, Dutch newspaper Het Financieele Dagblad reported.

While a measure of German manufacturing and services activity unexpectedly rose for the first time in three months, the rate of expansion remained “lacklustre” compared with momentum recorded earlier last year, Markit said.

Output in France fell for an eighth month in December as a slight recovery in services failed to offset a deepening downturn at the country’s factories.

A gauge for Italy showed a return to contraction. Growth at UK service companies slowed more than economists forecast in December, adding to signs the economy lost momentum at the end of 2014, Markit said.

A first estimate of euro-area gross domestic product in the fourth quarter will be published on February 13.

Economists in Bloomberg’s monthly survey predicted in December that the economy expanded 0.2% in the final three months of the year, matching the growth rate of the previous period.

The ECB forecasts growth will accelerate from 0.8% in 2014 to 1% this year and 1.5% in 2016. A slump in oil prices and a weaker euro may offer additional support through higher consumer spending and increased competitiveness of exporters.

At the same time, cheaper oil is aggravating concern about a deflationary spiral.

Inflation probably turned negative at the end of 2014, and ECB chief economist Peter Praet has said consumer prices may decline during part of 2015. Data are due from Eurostat today.

“Despite showing slightly improved eurozone economic activity in December and a marginally reduced drop in prices charged, the December purchasing managers surveys do little to ease pressure on the ECB to take further stimulative action,” said Howard Archer, chief European economist at IHS Global Insight. “The odds now strongly favor the ECB engaging in QE in the first quarter of 2015.”

* Bloomberg

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