Euro zone surveys solid at end-2015; Germany, Italy shine

By Sumanta Dey

(Reuters) - The euro zone economy finished 2015 on solid footing, with business growth in Germany and Italy accelerating to multi-year highs, although inflation pressures remained weak despite months of lavish European Central Bank stimulus.

Activity across the 19-country bloc reached a four-month high in December and firms took on staff at the fastest pace in almost half a decade, according to monthly purchasing managers' index (PMI) surveys of private sector businesses.

A final PMI of the huge services sector beat even the highest forecast in a Reuters poll of economists, while a rise in the business expectations sub-index to an eight-month high suggested growing optimism about the outlook for 2016.

Survey compiler Markit said a rise in the composite PMI to 54.3 -- compared with a flash estimate of 54.0 and November's reading of 54.2 -- pointed to modest but steady fourth quarter economic growth of 0.4 percent.

"Overall in December, the marginal increase in euro area composite PMIs was supported by stronger hiring intentions, while new orders dropped slightly from November's 4-1/2 year peak," noted Barclays economists.

"This remains consistent with our scenario of continued moderate growth in Q4 and in the quarters ahead."

German business activity expanded at its quickest pace in nearly 1-1/2 years last month, but services growth in France, the bloc's second biggest economy, ground to a halt in the wake of November's deadly gun and suicide bomb attacks in Paris.

Italian business growth hit its highest in almost six years, beating all forecasts. A similar survey earlier this week showed Italian manufacturing also gaining momentum, suggesting a turnaround in fortunes for the euro zone's third-largest economy, which has been in or near recession for years.

In Spain, where nearly one in two young people are unemployed, the PMIs indicated solid but slightly slower growth.

And in Britain, outside the euro zone, solid services growth cooled, suggesting a loss of economic momentum.

A report later on Wednesday is expected to show the services sector in the United States picked up slightly last month, contrasting with data earlier this week that pointed to a further contraction in factory activity in December.

PRICE PRESSURES WEAK

Nine months after the ECB launched its 60 billion euros a month bond-buying program, there is little sign that inflation is heading back towards its target of just under 2 percent from a current 0.2 percent.

Markit's composite output price index for December was 49.5, indicating firms cut prices to win orders for the third month in a row.

The ECB also cut its deposit rate to -0.30 percent last month and extended the term of its asset purchase program, although many investors were disappointed it had not also increased its monthly spend.

Signs that activity is picking up in some big economies may reinforce opposition from some quarters, including Germany, to any proposals for further stimulus.

ECB chief economist Peter Praet acknowledged in an interview published on Wednesday that money-printing had so far failed to drive up inflation but said the bank had no "plan B".

Praet, a member of the ECB's Executive Board, said various factors, notably low oil and commodity prices, meant it was taking longer to reach the inflation target, but that the ECB would continue its accommodative stance for as long as needed.

"The ECB is ready to take all measures necessary to bring inflation up to 2 percent," he said. "If you print enough money, you get inflation. Always."

(Editing by Catherine Evans)

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