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Euro zone business growth slows in September as prices keep sliding: PMI

LONDON (Reuters) – Euro zone business activity has expanded at a slightly weaker pace than expected in September as firms cut prices for the 30th month in a row, a survey showed on Tuesday.

The data will dishearten the European Central Bank, which is struggling to spur growth and revive inflation rooted way below its target.

Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, dipped to a nine-month low of 52.3, shy of expectations in a Reuters poll for no change from August’s 52.5.

The index has been above the 50 mark that separates growth from contraction since July 2013 although Markit said the latest survey pointed to third-quarter economic growth of just 0.3 percent.

“The ECB will be disappointed. It’s got a big uphill battle on its hands and perhaps what the survey is saying is what they have done to date is not going to be enough,” said Chris Williamson, chief economist at Markit.

“Although they will want to wait and see what the ABS purchases do in terms of stimulating the economy, the danger is the longer you wait, the more entrenched the downturn becomes.”

The ECB surprised markets earlier this month by cutting benchmark lending and deposit rates further and said it would buy asset-backed securities and covered bonds.

Growth ground to a halt in the bloc last quarter as Germany’s economy shrank and France’s stagnated, adding to the pressure on the ECB, although no change to policy is expected when the Governing Council meets next week.

The manufacturing PMI for Germany, Europe’s largest economy, slumped to 50.3, its lowest reading since June 2013 and below all forecasts in a Reuters poll of 32 economists.

A service industry PMI for France, the bloc’s second-biggest economy, sank to 49.4 after just two months in growth territory.

PRICE FALL

Consumer inflation in the 18 countries sharing the euro rose to just 0.4 percent year-on-year in August, slightly higher than July’s 0.3 percent but staying so far below the ECB’s 2 percent target ceiling that it was not enough to radically alter the outlook.

According to the PMIs, firms cut prices again this month – although not as steeply as they did in August. The composite output price index rose to 49.2 from 48.9 but has now been below the 50-mark for a full 2-1/2 years.

“Growth is only being achieved by price discounting across the region as a whole,” Williamson said.

A manufacturing PMI for the euro zone nudged down to 50.5, in line with the consensus forecast but below August’s 50.7. The output index, which feeds into the composite PMI, held steady at

51.0.

Next month is unlikely to see much improvement, if any, as new orders fell for the first time in over a year. The sub-index dropped to 49.7 from 50.7.

The flash services PMI also fell, coming in at a below forecast 52.8 compared to August’s 53.1.

With the slowdown continuing, service firms were less optimistic about the future. The business expectations index fell to a 14-month low of 58.4.

“In the face of all these efforts by the European Central Bank the outlook of firms for the year ahead is a huge disappointment,” Williamson said.

(Editing by Hugh Lawson)

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