Euro zone private sector on strong footing but still slashing prices: PMIs

Wed Apr 23, 2014 4:08am EDT
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By Jonathan Cable

LONDON (Reuters) - The euro zone's private sector has started the second quarter on its strongest footing in nearly three years, but burgeoning new orders were again mainly buoyed by firms cutting prices, surveys showed on Wednesday.

The bloc's services industry performed better than any of the 36 economists polled by Reuters had expected, and manufacturers also had a stronger month than the median forecast had suggested.

"It's pretty encouraging considering what we have seen for years. We are looking at 0.5 percent quarter-on-quarter GDP growth if we continue to see this level," said Chris Williamson, chief economist at Markit.

"The main concern is that signs of deflationary forces are still very much apparent."

Worryingly for policymakers, who have struggled to bring inflation up to their 2 percent target ceiling, service firms cut prices for the 29th month in a row - and did so at a steeper pace than in March.

Inflation fell to just 0.5 percent in March, its sixth straight month in what European Central Bank President Mario Draghi has called a "danger zone" below 1 percent and keeping pressure on the ECB to intervene.

Having already chopped its main interest rate to near zero and loaned banks more than 1 trillion euros of cheap cash the ECB left monetary policy unchanged this month but opened the door to turning on the money-printing presses to boost the economy and keep inflation from staying too low.

However, Markit's flash Composite Purchasing Managers' Index, which is widely regarded as a good gauge of growth, suggested the economic support, at least, may not be necessary.   Continued...

A cashier holds euro banknotes in Riga January 1, 2014. REUTERS Ints Kalnins