German manufacturers return to growth but France and Italy's weaken further - while the euro sinks on a warning from Mario Draghi that the ECB faces an uphill struggle. Ciara Lee reports.
Swimmers take a New Year's dive in Rome's Tiber. It's a chillly start to 2015 for Italy - in more ways than one. Italian manufacturing shrank in December at the fastest pace in 19 months, as the euro zone's third-biggest economy battles with its third recession in six years. Overall euro zone manufacturing ended 2014 on a subdued note as output, new orders and employment all recorded sluggish growth. The downturn also deepened in France, the bloc's second-biggest economy. Germany did provide a glimmer of hope though. A boost in new orders helped manufacturing return to growth in December. ETX Capital's Joe Rundle. (SOUNDBITE) (English) ETX CAPITAL'S HEAD Of TRADING, JOE RUNDLE, SAYING: "The redeeming factor here is that Germany is above 50 which is a good sign. I think Germany is the only thing holding the euro zone together. But I think it is probably masking a bigger issue here and a divergence between Germany and the rest of the the euro zone, and the fact that they are going to need to more to stimulate the rest of the euro zone." Alongside a stagnating economy are fears that plunging oil prices may send the bloc into a deflationary spiral. ECB chief Mario Draghi says the risk of the bank not fulfilling its mandate of preserving price stability was higher now than half a year ago. In comments to the Handelsblatt newspaper, he also reiterated his readiness to act early this year if necessary. But some are sceptical. (SOUNDBITE) (English) ETX CAPITAL'S HEAD Of TRADING, JOE RUNDLE, SAYING: "I think Draghi is the master of talking about ECB solutions but not actually pulling the trigger on them." Also taking a dive, the euro took a downward lurch on Draghi's comments, sinking to a 4-1/2 year low against the dollar. (SOUNDBITE) (English) ETX CAPITAL'S HEAD Of TRADING, JOE RUNDLE, SAYING: "He certainly wants a weak euro and that is what he is trying to do. Being honest, the ECB is running out of options. Quantitative easing or full-blown sovereign QE seems to be in the distance at the moment with the political ramifications of it. So without that he doesn't really have many tools." Draghi's urged politicians to implement reforms and reduce tax burdens to support the recovery. Euro zone inflation stands at 0.3 percent, far below the ECB's target rate - and some fear it could dip into negative territory when the latest inflation figures are announced next week.