Euro zone growth falters at end of 2014

Tue Jan 6, 2015 6:44am EST
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By Jonathan Cable

LONDON (Reuters) - The euro zone economy ended 2014 with its worst quarter for over a year, according to surveys of activity that highlighted continuing downturns in France and Italy and a stuttering performance by paymaster Germany.

Britain, outside the currency union, experienced a similarly gloomy end to the year, with growth across services companies weakening to its slowest since mid-2013. That underscored a wider loss of pace in the economy as an election approaches.

Italy's service sector shrank for the first time in three months in December while overall business activity in France contracted, Markit's Purchasing Managers' Indexes (PMIs) showed.

With fears cheap oil will tip the now-19-country bloc into deflation prompting calls for urgent action by the European Central Bank, firms across the euro zone again cut prices, as they have been doing for nearly three years. [EUR/PMIS]

"The downward revision to December's euro zone PMI added to signs that the economy is barely expanding. And with the price indices highlighting the threat of deflation, the ECB remains under intense pressure to increase its support," said Jennifer McKeown, senior European economist at Capital Economics.

A Reuters poll in December predicted that risks of a deflationary spiral -- consumer price data for the euro zone due on Wednesday are widely expected to show a fall in annual terms -- will push the ECB to buy sovereign debt in early 2015. ECONEZ [ECILT/EU]

After ECB President Mario Draghi said last week the central bank stood ready to respond to the risk of deflation, many expect an announcement to come as soon as this month. ECB policymakers meet on Jan. 22.

Britain drew a line under its own quantitative easing program years ago but so far only two of the Bank of England's nine policy setters have voted to raise rates from their record low 0.5 percent. None of the 44 economists polled by Reuters expect any change on Thursday and financial markets have pushed back expectations for a first rate hike deep into this year. [ECILT/GB]GBBASE   Continued...

A man walks past an Euro sign light installation in Vilnius December 31, 2014. REUTERS/Ints Kalnins