Euro zone business growth rises as firms cut prices again

Euro zone business growth accelerated slightly in November, but with firms cutting prices again the improvement will do little to alter expectations of more easing by the European Central Bank later on Thursday.

So far, the central bank has failed to get inflation anywhere near its 2 per cent target ceiling, and businesses across the currency union cut prices at a steeper rate last month than in October, Markit’s Purchasing Managers’ Index showed.

"The ECB's concerns over price stability are given further credence by the survey showing average prices charged for goods and services dropping for a second successive month," said Chris Williamson, chief economist at survey compiler Markit.

“As yet, it seems faster growth is not showing any signs of generating inflation.”

Inflation in the euro zone held steady at just 0.1 per cent last month, data showed on Wednesday.

Markit’s composite output price index for November slipped to 49.5 from 49.6, however, falling further below the 50 mark that separates increases from contraction for a second month.

That is despite the ECB buying €60 billion a month of mostly government bonds since March. A Reuters poll last week suggested the bank would say on Thursday that it will expand and extend its buying programme.

The ECB is also highly likely to cut its deposit rate further into negative territory, effectively increasing the amount banks have to pay to park money overnight.

Price cutting in the private sector helped to generate orders, however. Markit’s final composite PMI rose to 54.2 from October’s 53.9, although that was shy of an earlier flash estimate of 54.4.

Mr Williamson said the headline index, seen as a good guide to growth, pointed to a fourth-quarter economic expansion of 0.4 percent, in line with a Reuters poll.

A new orders sub-index rose to a 4-year high of 54.8 from 53.6, also boosted by a weaker euro making the euro zone’s goods and services cheaper and therefore more attractive abroad.

The PMI for the euro zone’s dominant service industry nudged up to 54.2 from October’s 54.1. That was also shy of the flash 54.6 but in one sign of optimism, firms increased headcount at the fastest rate in six months.

Coming in at 52.4 last month the employment sub-index was just ahead of October’s 52.3.

Reuters