Eurozone economy picks up in January: Survey

AFP , Friday 23 Jan 2015

Eurozone business activity picked up to a five-month high in January, a key survey showed Friday, just the day after the European Central Bank announced a 1.0-trillion-euro economic stimulus package.

Analysts said the report was encouraging as it confirmed a recent modest pick-up but they cautioned that growth remains weak after the economy faltered badly in 2014.

Markit Economics said its Composite Purchasing Managers Output Index (PMI) for the 19-nation single currency bloc hit 52.2 points, up from 51.4 in December.

The report showed the manufacturing sector rising to a six-month high of 51 points in December from 50.6 in December, with services up to 52.3 from 51.6.

Any reading above 50 points shows activity is expanding.

The eurozone stagnated in the second quarter last year and only managed 0.2 percent growth in the three months to September, with analysts worried that deflation could tip the economy back into recession.

Markit chief economic Chris Williamson said the latest PMI figures marked "a positive start to 2015 ... but the rate of expansion remains worryingly weak."

The report suggested the eurozone was growing "at a quarterly rate of just 0.2 percent and the economy both fragile and susceptible to shocks and further setbacks," Williamson said.

"That said, there's good reason to believe the rate of expansion will continue to improve in coming months," he said, citing signs of a rise in business confidence while tumbling oil prices should cut costs and help boost consumer demand.

On Thursday, the ECB said it would pump some 60 billion euros a month through to late-2016 into the economy via a bond purchase programme in an effort to get it back on track.

"Business confidence in services has already improved, rising to the highest since March of last year, and the additional stimulus (from the ECB) should help to underpin a further improvement in confidence," Williamson said.

He cautioned however that while lower oil prices will help household finances, they "will inevitably fuel growing concerns about the threat of deflation."

Deflation, when prices fall in absolute terms, can play havoc because consumers are likely to put off purchases in the hope of buying cheaper in the future.

That however only further depresses demand, forcing companies to cut investment and jobs, setting up a vicious downward spiral.

ECB chief Mario Draghi stressed Thursday the new "Quantitative Easing" or QE policy would remain in place "until we see a sustained adjustment in the path of inflation."

Jennifer McKeown at Capital Economics said the PMI report "suggests that growth remains very slow, confirming that the ECB's latest policy support is sorely needed."

The figures were consistent with overall economic growth of 0.2 percent, McKeown said, noting that while Germany made progress, France, the bloc's second ranked economy, slipped back.

McKeown said the ECB programme should be positive overall "but growth will be slow, doing little to erode the spare capacity in the economy and holding open the risk of a prolonged bout of deflation."

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