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Nov 5, 2014 5:44 AM

Eurozone economy still 'limping along'

The Associated Press

LONDON (AP) Further evidence emerged Wednesday to suggest the 18-country eurozone is more likely to sink back into recession than stage a strong rebound, adding pressure on the European Central Bank to enact a further stimulus in the months ahead.

However, with ECB policymakers gathering in Frankfurt for their monthly policy meeting, few economists think they will be inclined to announce further measures on Thursday, especially as the euro continues to fall against the dollar and oil prices have dropped sharply. A weaker currency can boost growth by lifting exports, while cheaper energy can cut consumers' fuel bills.

For now, the picture remains uninspiring, at best.

Though the monthly purchasing managers' index a broad gauge of business activity from financial information company Markit rose 0.1 percentage points in October to 52.1, the index still points to very modest growth. Anything above 50 indicates expansion.

"The eurozone PMI makes for grim reading, painting a picture of an economy that is limping along and more likely to take a turn for the worse than spring back into life," said Chris Williamson, Markit's chief economist.

He said a fall in employment indicators in the survey for the first time since last November casts a further shadow over the outlook at a time when employers are seeing profit margins squeezed by weak prices. A big concern the ECB is facing is that low inflation turns into a debilitating bout of deflation that could weigh on growth as consumers delay spending in hopes of cheaper bargains down the line.

Consumers already appear to be under pressure if separate figures from the European Union's statistics agency, Eurostat, are anything to go by.

Eurostat found eurozone retail sales slumped 1.3 percent in September, with powerhouse economy Germany even posting a 3.2 percent collapse.

Some sort of fall had been anticipated for the eurozone following August's 0.9 percent rise, but the scale of it was a disappointment the consensus in the markets was for a more modest 0.7 percent decline.

"Today's data provided more evidence that the eurozone economy remained very weak in the third quarter," said Sarah Pemberton, European economist at Capital Economics. "What's more, there are few early indications of an improvement in Q4, putting additional pressure on the ECB to provide more policy support."


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