Sat, Jan 23, 2016 - Page 14 News List

Eurozone private sector hit by market volatility

EXPECTED COOLING:Markit Economics said that while the pace of growth is disappointing, it is not surprising given the uncertainty caused by the market this year

Bloomberg

Private sector growth in the eurozone has slowed to the weakest in almost a year as volatility in financial markets highlighted risks to economic growth, Markit Economics said yesterday.

A purchasing managers’ index (PMI) for manufacturing and services fell to 53.5 this month from 54.3 last month, the London-based company said.

That was the lowest level since February last year. A reading above 50 indicates expansion.

With a cooling Chinese economy sending global markets tumbling and exacerbating an oil crash that is damping consumer price gains, the European Central Bank (ECB) is considering more stimulus as early as March.

A year after announcing an unprecedented quantitative easing plan, and a month after extending that program while making the deposit rate more negative, ECB President Mario Draghi is still struggling to lift inflation in the region above zero.

“The cooling in the pace of growth in euro area business activity at the start of 2016 is a disappointment, but not surprising given the uncertainty caused by the financial market volatility seen so far this year,” Markit chief economist Chris Williamson said.

However, “it would be wrong to get too worried,” he added.

The PMI still points to growth of 0.3 percent to 0.4 percent at the start of the year, he said.

A continued increase in new orders in both manufacturing and services boosted backlogs of uncompleted work to the highest in about four-and-a-half years, prompting firms to hire more staff.

“With plenty of orders in hand to work through, hiring remained encouragingly resilient at the start of the year,” Williamson said.

Lower oil prices “will also help boost sales, especially as the fall in households’ fuel bills should free up more income to spend on other goods and services,” he added.

Within the eurozone, German manufacturers and service providers shrugged off uncertainty stemming from turbulence in financial markets as new orders increased, Markit said.

While the PMI for both industries fell to 54.5 from 55.5 last month, the weakest in three months, it still signaled “robust” growth, Markit said.

“Germany’s private sector economy was largely unaffected by the recent stock-market turmoil,” Markit economist Oliver Kolodseike said. “Companies should remain in expansion mode in coming months. New orders continued to rise strongly and employment was raised at a healthy rate as capacity pressures continued to build.”

Meanwhile, a rebound in French services activity drove a pickup in private sector growth in the eurozone’s second-largest economy this month, with the PMI for the industry rising to 50.6 from 49.8 last month, Markit said.

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