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Eurozone growth still sluggish

August 21, 2014

Business activity in the eurozone grew at a slower pace than expected this month, a key economic survey has shown. But data did indicate a faint recovery in the bloc, where growth stalled in the second quarter.

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The European Central Bank in Frankfurt, Germany
Image: Getty Images

Private business growth slowed to a marginal pace in the 18-member eurozone in August despite extensive price cutting, a survey showed Thursday.

The Purchasing Managers' Index (PMI), a closely watched measure of overall growth that surveys thousands of companies across the region, fell to 52.8 points from 53.8 points in July. A reading above 50 indicates expansion.

This month's figure suggested the eurozone economy is making only mild progress toward recovery, after logging a disappointing second quarter of zero growth.

"The eurozone economy continued to make steady progress in August, as the region looks to bounce back following the recent weaker-than-expected GDP readings for the currency union," said Rob Dobson, senior economist at London-based Markit, the research group that published the PMI data.

Dobson added the region will probably register growth of only 0.3 to 0.4 percent in the quarter - a level unlikely to stimulate any real turnaround in the labor market.

A tale of two countries

Markit's survey also outlined the vulnerable states of the eurozone's two largest economies, Germany and France.

Though firmly in expansion territory, Germany's figures dropped from 55.7 points in July to 54.9 points in August in response to a decline in manufacturing output.

"The concern is the divergent trends within the economy, with the manufacturing sector losing further momentum," Markit economist Oliver Kolodseike said of Germany. "Production growth was the weakest in over a year and employment was cut for the third month running."

The survey added France's economic activity stabilized after three months of downturns, rising from 49.4 points to the break-even mark at 50.

Fall in consumer prices

The European Central Bank (ECB) is providing another round of temporary credit to banks to support growth and to battle the threat of deflation.

Businesses cut prices for the 29th month and at a faster rate than in July, according to the composite output price index. Consumer prices in the eurozone rose only 0.4 percent on the year last month, the weakest annual rise since October 2009 at the height of the financial crisis.

Market analysts believe the latest data will add more pressure on the ECB to do more for the flagging eurozone economy, even if other major central banks move in the opposite direction.

A Reuters poll showed there is a 1-in-3 chance the ECB would embark on an asset purchase program next year.

el/cjc (Reuters, AFP, AP, dpa)