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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
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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, a survey showed on Friday. 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.
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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 over 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. 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.