Business activity rises in the euro zone

Business activity in the eurozone picked up at its fastest pace since mid-2011 this month, and far quicker than expected, as slowing growth in France following the November 13 attacks was offset by a buoyant Germany.

While the upturn in activity may be welcomed by ECB policymakers, yesterday’s surveys showed firms again cut prices, suggesting ultra-loose monetary policy is doing little to get inflation near their 2% target.

“This upbeat survey about the European economy fell short on one important aspect though: Inflation,” said Bert Colijn at ING. “The survey indicated that despite the strongest output growth and job creation since early 2011, there was still no sign of inflationary pressures.”

Even with the ECB injecting €60bn a month of new money through its bond-buying programme since March to support growth and inflation, prices rose only 0.1% last month. It is expected to expand the programme in December.

With firms cutting prices for a second month, Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and seen as a good guide to growth, jumped to a more than four-year high of 54.4 from October’s 53.9.

That beat the 53.9 median forecast in a Reuters poll. The index has been above the 50 mark that separates growth from contraction since July 2013.

The data pointed to fourth quarter economic growth of 0.4%-0.5%, Markit said. A Reuters poll published earlier this month suggested growth would be 0.4%.

“Overall, eurozone GDP growth of even 0.5% will not be sufficient to eat into the vast amount of spare capacity that still exists and help to boost inflation,” said Jessica Hinds at Capital Economics.

“We, therefore, doubt that today’s data will be sufficient to dissuade the ECB from increasing its monetary support in December.”

The ECB is ready to act quickly to boost anaemic inflation in the eurozone, its president said on Friday, offering the strongest hint yet that the bank will unveil fresh stimulus measures at its December 3 meeting.

Growth in the French services sector slowed although a faster increase in manufacturing activity helped keep the private sector expanding. France’s slowdown came as growth in Germany’s private sector accelerated, suggesting Europe’s biggest economy is defying worries over a slowdown in China and the emissions scandal at car maker Volkswagen.

* Reuters