Euro zone businesses had disappointing start to 2016 -PMI

Wednesday 03 February 2016 19.13
Euro zone companies cut prices for a fourth month - and at the steepest rate since March, latest PMI shows
Euro zone companies cut prices for a fourth month - and at the steepest rate since March, latest PMI shows

Euro zone businesses started 2016 in slightly better shape than first thought, a new survey has found.

But January's pace of growth matched only the weakest seen in the past year, adding to pressure on the ECB to ease policy again. 

That tepid growth came despite firms cutting prices for a fourth month - and at the steepest rate since March - just as the European Central Bank is battling to push inflation higher from a feeble 0.4% in January. 

"A disappointing euro zone PMI survey for January indicated one of the weakest expansions seen over the past year and raises the prospect of further stimulus," said Chris Williamson, chief economist at survey compiler Markit.

"Growth of activity, order books and employment all lost momentum, but perhaps most worrying of all from a policymaker's perspective is the intensification of deflationary pressures," he added. 

Markit's final Composite Purchasing Managers' Index, seen as a good guide to growth, came in at 53.6, just pipping an earlier flash estimate of 53.5 but considerably below December's 54.3. 

The output price index fell further below the 50 mark that separates growth from contraction. It registered a 10-month low of 48.9 compared to December's 49.5. 

Markit said the PMIs point to euro zone growth of 0.4% at the start of the year, in line with a January Reuters poll. 

"Growth and inflation have clearly failed to pick up over the past year despite the renewed stimulus efforts from the ECB. This raises the question of whether existing stimulus has simply been insufficient, or whether monetary policy is proving ineffective," Williamson said. 

The ECB is widely expected to cut its deposit rate further into negative territory when it meets in March and there is an even chance it increases the €60 billion a month it currently spends buying bonds, a Reuters poll found. 

Price cutting failed to have any meaningful impact on the bloc's dominant service industry. Its PMI slipped to a year-low of 53.6 from 54.2, as predicted by the flash estimate. 

The prospect of more stimulus from the ECB meant firms were at their most optimistic about the upcoming year since the middle of 2011, however, with the business expectations index leaping to 65.1 from December's 63.3.