LONDON/NEW YORK: The eurozone economy may face another contraction after business activity grew less than expected in November, although Asian readings were more upbeat, while US data was mixed in global surveys published yesterday.
Firms across the eurozone cut prices again which may concern the European Central Bank which holds a policy meeting today.
In contrast, a survey covering China’s services sector showed slightly faster expansion, but after data on Monday suggested manufacturing growth was its weakest in at least six months, investors remain concerned that Chinese economic growth is slowing.
“There are clear downside risks to various areas of the world economy including the eurozone and to some extent China,” said Philip Shaw, chief economist at Investec. “The eurozone numbers do indicate the economy is moving forwards but at a snail’s pace, (and) the pressure remains on the ECB.”
Markit’s final November Composite Purchasing Managers’ Index (PMI), based on surveys of thousands of companies across the euro area and seen as a good indicator of growth, sank to 51.1 from October’s 52.1.
November was the 17th month the index has been above the 50 level that separates growth from contraction, but the new business index fell below that mark for the first time since the middle of last year, suggesting a further downturn in December.
“The region is on course to see a mere 0.1 percent GDP growth in the final quarter of the year, with a strong likelihood of the near-stagnation turning to renewed contraction in the new year unless demand shows signs of reviving,” said Chris Williamson, Markit’s chief economist.
A poll last month for the eurozone predicted 0.2 percent economic growth this quarter and 0.3 percent next. The Markit PMI covering the eurozone’s dominant service industry fell to 51.1 from October’s 52.3 and showed firms have been cutting prices for three full years now to drum up business. The ECB is offering banks long-term cheap loans and buying covered bonds and asset-backed securities. But facing resistance from Germany, there is only an even chance it will buy government bonds, a poll found last week.
Conversely, the Bank of England is expected to begin tightening policy next year and after a survey showed its services sector expanded more than expected last month, recently revised forecasts for a later hike may be brought back in.
China’s official non-manufacturing PMI rose to 53.9 in November from 53.8 while a separate services PMI published by HSBC/Markit inched up to 53.0 last month from October’s 52.9, as new orders rose at their quickest pace in 2-1/2 years. But the surveys painted a mixed picture of the labour market, which Chinese leaders say is a crucial consideration when setting policy.
Along with the news, that prompted some economists to predict China would cut interest rates again in coming months after doing so unexpectedly on November 21. “Things have gotten worse rather than better,” said Louis Kuijs, an economist at RBS in Hong Kong, adding that any bottoming out in China’s sagging housing market is unlikely to lead to a solid rebound next year. Reuters
