Euro zone business growth near two-year low in September: PMI

September 23, 2016 6:19 AM EDT

An employee works on the automobile assembly line of Bluecar electric city cars at Renault car maker factory in Dieppe, western France, September 1, 2015. REUTERS/Philippe Wojazer


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By Jonathan Cable

LONDON (Reuters) - Euro zone business activity has expanded at its weakest rate since the start of 2015 this month as growth paths diverged and firms stopped discounting for the first time in a year, surveys showed on Friday.

Markit's composite survey showed a big split between buoyant manufacturers and a struggling service sector, and a similar divide in growth rates among members of the currency union: French business activity hit a 15-month high, while Germany's private sector growth slowed to a 16-month low.

The euro zone flash composite Purchasing Managers' Index, seen as a good overall growth indicator, fell to 52.6 from August's 52.9. Readings above 50 indicate growth, but it was still the lowest figure since January 2015.

A Reuters poll of economists had predicted only a slight dip to 52.8.

"They (PMIs) rather confirmed the expectations that moderate but stable growth in the euro area has continued in the autumn," said Tuuli Koivu at Nordea.

Markit said the PMI pointed to the bloc's GDP expanding around 0.3 percent this quarter, in line with a Reuters poll earlier this month that suggested economies stuck in low gear need fiscal policies rather than more monetary easing. [ECILT/EU]

The European Central Bank has unleashed extraordinary stimulus in recent years but interest rates are probably close to the bottom, even though the bank had hoped the euro zone economy would respond better, two top policymakers said on Friday.

Those years of ultra-loose policy have so far failed to get inflation anywhere near the European Central Bank's 2 percent target ceiling so policymakers may take some cheer from firms halting price discounting for the first time in a year.

The output price index rose just above the breakeven mark to 50.1 from 49.3.

"It does seem to be a very tentative hint at rising inflation though, meaning that it can still be a while to come before meaningful price growth will return," said Bert Colijn at ING.

Consumer confidence rose in August, official data showed on Thursday, and manufacturers had a much better September than expected. Their PMI climbed to 52.6 from 51.7, beating all forecasts in a Reuters poll, while an index measuring output rose to a nine-month high of 54.0 from 53.3.

The rally could continue into October, as new orders came in at a much faster rate. The sub-index leapt to 53.0 from 51.4.

A PMI covering the bloc's dominant service industry slumped to 52.1 from 52.8, however, its lowest reading since late 2014 and below all forecasts in a Reuters poll which had predicted no change.

Optimism among businesses in the industry also continued to slide with the expectations index falling to a 21-month low.

It was a similar mixed picture from Germany and France, the bloc's two biggest economies and the only members to issue single-country flash PMIs.

Services lifted French business activity to a 15-month high while growth in Germany's private sector slowed to a 16-month low, suggesting the powerhouse of the currency union may have lost momentum in the third quarter.

"It clearly throws a shadow on the so-far strong growth of the German economy," Koivu said.

(Editing by Hugh Lawson)



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