Low growth, price cuts plague euro zone, haunt ECB

Wed Nov 5, 2014 7:11am EST
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By Jonathan Cable

LONDON (Reuters) - Euro zone business growth picked up less than expected in October despite another, deeper round of price cuts, according to surveys that are unlikely to ease simmering tensions among the bloc's central bankers.

Companies have been discounting prices for over 2-1/2 years and did so last month more steeply than at any time since early 2010, when the single currency area was mired in a sovereign debt crisis.

Weak growth in services and manufacturing despite further discounting will add to pressure on the European Central Bank on the eve of a policy meeting, as it seeks ways of warding off deflation and bringing inflation - at just 0.4 percent in October - out of what it terms the danger zone below 1 percent.

Markit's final Composite Flash Purchasing Managers' Index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, was all but unchanged from September's 10-month low of 52.0, coming in at 52.1.

"Such a weakness is worrying, as it highlights the feeble nature of demand in the euro area and adds to growth concerns. Forward-looking components in both sectors proved to be disappointing," said Apolline Menut at Barclays.

Although the PMI chalked up its 16th month above the 50 line that separates growth from contraction, the expansion came at a cost.

A sub-index for output prices slumped to 47.1 from September's 48.5, its lowest reading since February 2010 and suggesting firms were desperately slashing prices.

"The euro zone still faces a significant deflation risk. Unless there is a sustained, clear change in the euro zone's fortunes, the ECB could yet ultimately have to go down the quantitative easing road," said Howard Archer at IHS Global Insight.   Continued...

A euro logo sculpture stands in front the headquarters of the European Central Bank (ECB) in Frankfurt October 26, 2014. REUTERS/Ralph Orlowski