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Price cuts and rise in orders quicken pace of eurozone business growth | Price cuts and rise in orders quicken pace of eurozone business growth |
(35 minutes later) | |
Eurozone business growth unexpectedly accelerated this month as steeper price cutting drove an increase in new orders and led to firms building a bigger backlog of work, according to a new survey. | |
The relatively upbeat survey, one of the earliest monthly economic indicators, suggests the European Central Bank’s (ECB) massive bond-buying programme and a weaker euro may finally be having an impact on growth. | The relatively upbeat survey, one of the earliest monthly economic indicators, suggests the European Central Bank’s (ECB) massive bond-buying programme and a weaker euro may finally be having an impact on growth. |
However, signs that businesses are cutting prices at a faster rate will be disappointing for the ECB, which has been battling to bring inflation – at just 0.2% in July – anywhere near its 2% target. | However, signs that businesses are cutting prices at a faster rate will be disappointing for the ECB, which has been battling to bring inflation – at just 0.2% in July – anywhere near its 2% target. |
“The eurozone economy as a whole is definitely showing a picture of resilience. Seeing those backlogs of work accumulating suggests we should see continued steady growth,” said Rob Dobson, senior economist at financial information provider Markit, which compiled the survey. | “The eurozone economy as a whole is definitely showing a picture of resilience. Seeing those backlogs of work accumulating suggests we should see continued steady growth,” said Rob Dobson, senior economist at financial information provider Markit, which compiled the survey. |
Markit’s composite flash purchasing managers’ index (PMI), based on surveys of thousands of companies and seen as a good guide to growth, rose to 54.1 this month from July’s 53.9. A Reuters poll had predicted a modest dip to 53.8. | Markit’s composite flash purchasing managers’ index (PMI), based on surveys of thousands of companies and seen as a good guide to growth, rose to 54.1 this month from July’s 53.9. A Reuters poll had predicted a modest dip to 53.8. |
Related: Brutish, nasty – and not even short: the ominous future of the eurozone | Wolfgang Streeck | Related: Brutish, nasty – and not even short: the ominous future of the eurozone | Wolfgang Streeck |
The headline index has been above the 50 level that separates growth from contraction since mid-2013. Dobson said the PMI pointed to third quarter GDP growth of 0.4%, matching the prediction in a Reuters poll last week. | The headline index has been above the 50 level that separates growth from contraction since mid-2013. Dobson said the PMI pointed to third quarter GDP growth of 0.4%, matching the prediction in a Reuters poll last week. |
To spur demand firms have been cutting prices since April 2012, and did so at a steeper rate this month than in July. The composite output price index fell to 49.5 from 49.8. | To spur demand firms have been cutting prices since April 2012, and did so at a steeper rate this month than in July. The composite output price index fell to 49.5 from 49.8. |
“The ECB and other policymakers will have a watchful eye on whether these price trends are moving back down towards ‘noflation’ or deflation,” said Dobson. | “The ECB and other policymakers will have a watchful eye on whether these price trends are moving back down towards ‘noflation’ or deflation,” said Dobson. |
But that discounting helped a PMI covering the bloc’s dominant service industry rise to 54.3 from 54, while a sister index covering manufacturers held steady at July’s 52.4. The Reuters poll had respective predictions for 54 and 52.2. | But that discounting helped a PMI covering the bloc’s dominant service industry rise to 54.3 from 54, while a sister index covering manufacturers held steady at July’s 52.4. The Reuters poll had respective predictions for 54 and 52.2. |
A sub-index measuring factory output, which feeds into the composite PMI, nudged up to 53.8 from 53.6. The euro has lost about 8% against the dollar since the start of the year, knocked by the ECB buying €60bn (£44bn) of bonds a month and by the Greek debt crisis, making the bloc’s goods cheaper abroad. | A sub-index measuring factory output, which feeds into the composite PMI, nudged up to 53.8 from 53.6. The euro has lost about 8% against the dollar since the start of the year, knocked by the ECB buying €60bn (£44bn) of bonds a month and by the Greek debt crisis, making the bloc’s goods cheaper abroad. |
That boosted demand for manufactured goods, and the new orders sub-index climbed to 52.7 from 52.2, matching a level set in May and June that had not been seen in more than a year. Service firms meanwhile were able to build up a surfeit of work. The backlogs of work index jumped to 51.4 from 51.1, and has only been higher once – in February – since mid-2011. |
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