Euro zone services and manufacturing activity contracted at a slightly slower pace in January, raising some suggestions that a floor may have been hit although key surveys remain deep in recessionary territory.
The weak data released today bolstered expectations that the European Central Bank will cut interest rates again in March although that may be the last move for a while. More signs in the surveys of sharp falls in inflationary pressures could help convince the ECB has it has room to cut.
The Markit Eurozone Purchasing Managers Index for services companies ranging from banks to bars rose to 42.5 in January from a low for the 10-year-old survey of 42.1 in December, well above the 41.5 consensus forecast from economists.
"Maybe the worst is over, hinting at a stabilisation of the economy," said Monika Wohlmann at WestLB.
But the headline index and all the surveys' measures of key indicators such as employment and new business remained well below the 50 mark that divides growth from contraction for the eighth month running, and economists noted that the rate of contraction remains severe.
Companies in the 16-nation bloc are struggling with tight credit conditions and a severe global recession, forcing many to cut jobs and slash prices to keep trading.
Underlining their problems, data from their key export market Britain showed its economy contracted by 1.5 per cent in the fourth quarter, the fastest pace since 1980.
Financial markets moved little after the PMI data, while the euro stuck close to a six-week low against the dollar hit in early trade.
Wohlmann at WestLB said euro zone GDP would have contracted very sharply in the fourth quarter of last year, will be weak with some signs of stabilisation in the first quarter, and may make a slight recovery in the second half.
Euro zone factories also saw a modest deceleration in the steep rate of decline set in the prior month, but still showed significant contraction.
The flash manufacturing PMI rose to 34.5 from a record survey low the previous month of 33.9, coming in above analysts' expectations for another fall to 33.2.
Earlier data showed that conditions in Germany, the euro zone's largest economy, deteriorated even faster across both its services and manufacturing sectors. France saw a moderation in the pace of decline.
Economists noted that the index measuring business expectations amongst services companies for the year ahead bounced, a tentative sign that companies think business may not get much worse.
"It's early days but I think it is maybe paving the way for some stabilisation in the system. And the ECB will be extremely sensitive to these developments," said Jacques Cailloux at RBS.
Reuters