Euro zone business growth has been weaker than any forecaster expected this month and new orders have fallen for the first time in more than a year despite further price-cutting, a survey shows, posing a new challenge for the ECB. David Pollard reports.
It's a data dilemma. Just days ago, the ZEW indicator showed economic sentiment in Germany rising for the first time in almost a year. A few days before that, GDP numbers surprised by showing Europe's largest economy had escaped recession - if narrowly. That's all so 'last week'. New PMI data shows Germany's private sector at its lowest growth rate in 16 months. Manufacturing gives a reading of 50 - in other words, stagnant. Chris Beauchamp is market analyst at IG. SOUNDBITE: Chris Beauchamp, market analyst, IG, saying (English): "I think the situation with the euro zone is getting worse and worse, especially in Germany and if you've got Germany getting worse then there's not much hope for everyone else really." The composite PMI number for the euro zone missed even the lowest forecasts - though at 51.4 does indicate some tepid growth. More worrying are the clues about the future. New orders fell for the first time in more than a year. And - of concern to the ECB and its worries over deflation - those orders are down despite firms cutting prices again. SOUNDBITE: Chris Beauchamp, market analyst, IG, saying (English): "I think it really does focus the ECB's mind if they weren't already before and of course we're heading towards the next meeting with a great degree of rapidity. Now there's a big gap between this one and the first one in 2015 and the sense is that if this run of bad PMIs continues maybe the situation may become almost irretrievable." But if action equates to the much anticipated, much hoped for QE, that might also be a dilemma, warns Credit Agricole's head of FX strategy, Adam Myers. SOUNDBITE: Adam Myers, European Head of FX Strategy, Credit Agricole, saying (English): "One of the biggest problems with Europe of course is demographic because that is consumption based and unfortunately any level of monetary policy, whether it ultimately comes from sovereign bond purchases in the form of QE, is not going to rectify that situation. Japan is a very good example in point .... There is a risk that the euro zone is going to slip into recession next year and that's because of the economic side rather than any policy moves from the ECB." Myers singles out Italy for particular concern. It's been caught in a wave of strikes against prime minister Renzi's labour reform policies - with a nationwide protest called for December 12. But without reform it could, says Myers, be very difficult for Italy to keep its place as a euro zone member.