Eurozone Economy Appears to Slow, PMI Survey Suggests
October 24 2017 - 05:49AM
Dow Jones News
By Paul Hannon
The eurozone economy appears to have slowed slightly as it
entered the final quarter of what has been a strong year, but that
is unlikely to deter the European Central Bank from announcing a
reduction in its bond purchases.
Data firm IHS Markit on Tuesday said its composite Purchasing
Managers Index for the eurozone -- based on survey responses from
5,000 manufacturers and service providers -- fell to 55.9 in
October from 56.7 in September. A reading above 50.0 signals an
expansion in activity.
The decline in the measure was larger than expected, and was
driven by services companies, which rely more heavily on domestic
demand than their manufacturing counterparts.
However, there were signs of strength in other parts of the
eurozone economy that will likely reassure ECB policy makers as
they prepare for a crucial meeting Wednesday and Thursday.
The survey recorded the fastest growth in employment in over a
decade, which keeps alive hopes that wages will accelerate and help
generate the sustained pickup in inflation sought by the ECB.
And the measure of activity in the eurozone's factories rose to
its highest level in six-and-a-half years, an indication that the
euro's appreciation this year has yet to weaken exports.
"Firms don't appear to have been unduly affected by recent euro
strength, with growth of new export orders accelerating in
October," said Andrew Harker, an economist at IHS Markit. "Healthy
demand in export markets appears to be outweighing any negative
currency impacts."
The eurozone economy appears to be on course for its strongest
year since 2007, with the ECB's economists forecasting an expansion
of 2.2% compared with 1.8% in 2016.
Its performance this year has surprised most economists, who had
expected growth to slow in the face of increased levels of
political uncertainty and higher energy prices. That resilience
means the recovery probably needs less support from the central
bank.
In response, economists expect the ECB's governing council to
announce Thursday that it will reduce its bond purchases from
January.
However, the annual rate of inflation is still well short of the
ECB's inflation target, and that is a problem for policy makers.
There were signs in the survey of purchasing managers that
businesses raised their prices at the fastest rate since June 2011,
but that would still leave inflationary pressures at historically
modest levels.
"While the price components of the PMI survey picked up in
October, they are still subdued by past standards," said Stephen
Brown, an analyst at Capital Economics. "So alongside a tapering
announcement we expect the ECB to strengthen its forward guidance
to indicate that interest rates are unlikely to rise until
2019."
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
October 24, 2017 05:34 ET (09:34 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.