Euro zone economy looking set to contract in the new year: PMI

Wed Dec 3, 2014 4:40am EST
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By Jonathan Cable

LONDON (Reuters) - Heavy discounting failed to stop euro zone business activity growing less than thought last month, a survey showed on Wednesday, suggesting the bloc's economy may contract again early next year.

"The region is on course to see a mere 0.1 percent GDP growth in the final quarter of the year, with a strong likelihood of the near-stagnation turning to renewed contraction in the new year unless demand shows signs of reviving," said Chris Williamson, survey compiler Markit's chief economist.

A Reuters poll last month predicted 0.2 percent economic growth this quarter and 0.3 percent next. EUGDPQ

Markit's final November Composite Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the region and seen as a good indicator of growth, sank to 51.1 from October's 52.1, missing an earlier flash reading of 51.4.

November was the 17th month the index has been above the 50 level that separates growth from contraction. But the new business sub-index fell below that mark for the first time since the middle of last year, dropping to 49.7 from 50.8 and suggesting a further downturn in December.

A PMI covering the region's dominant service industry fell to 51.1 from October's 52.3, shy of the flash 51.3, and showed firms have been cutting prices for three full years now to drum up business. The output price index came in at 47.1.

Further price cutting, together with signs of economic performance deteriorating in the core countries, will concern the European Central Bank which is battling to reinvigorate the economy and drive up dangerously low inflation.

Annual inflation dipped to 0.3 percent in November, deep into the ECB's "danger zone" for price moves, although the central bank is not expected to alter its already very loose policy when it meets on Thursday.   Continued...

The skyline of the banking district is pictured in Frankfurt, October 21, 2014. The European Central Bank will release the results of Europe's most comprehensive review of its banks' health on October 26. REUTERS/Ralph Orlowski