Euro-Area Economy Weakens as ECB Considers Its Stimulus Options

By Alessandro Speciale

Euro-area services and manufacturing grew less than initially estimated last month, leaving the economy facing near-stagnation as the European Central Bank considers its options on further stimulus.
A composite Purchasing Managers Index fell to 51.1 from 52.1 in October, London-based Markit Economics said today. The reading is the lowest in 16 months and points to economic growth of just 0.1 percent this quarter, according to Markit.
ECB President Mario Draghi leads the Governing Council in its last policy meeting of 2014 tomorrow, when it will debate staff proposals on new tools to revive inflation and growth. While policy makers have signaled a preference to wait to assess current measures, the
continuing deterioration in the outlook is pressing their hand to act.
“The survey results indicate that policy initiatives currently announced have yet to have a meaningful impact on business or consumer confidence,” said Chris Williamson, chief economist at Markit. “More aggressive measures are likely to be needed.”
While the composite PMI remains above the 50-point mark that divides expansion from contraction, the reading is lower than an estimate of 51.4 published on Nov. 20. Williamson said there’s a “strong likelihood” that the near-stagnation in the 18-nation economy will become a “renewed contraction” early next year.

French Weakness

A gauge for the services industry fell to 51.1 this month from 52.3, according to today’s report. A measure of factory activity declined to 50.1 from 50.4, Markit said on Dec. 1.
The weakening economic momentum was highlighted by a decline in new orders, the first in 16 months. Across the region, France was the euro area’s weakest performer, with its composite index falling to 47.9 from 48.2, below an initial estimate.
The pace of growth declined to a 17-month low in Germany and a nine-month low Spain, while Italy’s economic activity accelerated slightly, Markit said.
Coupled with the waning growth in the euro region has been a slowdown of inflation. A slump in energy prices has contributed to this, a trend that will probably be reinforced by the decision last week by the Organization of Petroleum Exporting Countries not to cut oil output.
Inflation in the currency bloc slowed to 0.3 percent in November, matching a five-year low. Markit said today that prices pressures “remained subdued” in November, with input costs rising the least in seven months.