Euro zone risks return to contraction, China outlook smoggy

Wed Dec 3, 2014 10:39am EST
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By Jonathan Cable and Rodrigo Campos

LONDON/NEW YORK (Reuters) - The euro zone economy may face another contraction after business activity grew less than expected in November, although although Asian readings were more upbeat, while U.S. data was mixed in global surveys published on Wednesday.

Firms across the euro zone cut prices again which may concern the European Central Bank which holds a policy meeting on Thursday. [ECB/INT]

In contrast, a survey covering China's services sector showed slightly faster expansion, but after data on Monday suggested manufacturing growth was its weakest in at least six months, investors remain concerned that Chinese economic growth is slowing.

"There are clear downside risks to various areas of the world economy including the euro zone and to some extent China," said Philip Shaw, chief economist at Investec. "The euro zone numbers do indicate the economy is moving forwards but at a snail's pace, (and) the pressure remains on the ECB."

Markit's final November Composite Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the euro area and seen as a good indicator of growth, sank to 51.1 from October's 52.1.

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

"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, Markit's chief economist.

A Reuters poll last month for the euro zone predicted 0.2 percent economic growth this quarter and 0.3 percent next. EUGDPQ   Continued...

The new European Central Bank (ECB) headquarters are pictured  in Frankfurt, November 22, 2014.        REUTERS/Kai Pfaffenbach