World Economy

As EU Growth Weakens, ECB Prepares for Action

As EU Growth Weakens, ECB Prepares for ActionAs EU Growth Weakens, ECB Prepares for Action

Falling prices and potentially weakening growth in the eurozone are raising the prospect of more stimulus by the European Central Bank, according to Markit Economics.

While a Purchasing Managers’ Index for manufacturing and services unexpectedly increased to 54 in October from 53.6 in September, signaling a pickup in activity, forward-looking indicators point to a risk of a slowdown, London-based Markit said. Service-sector expectations for the year ahead fell to a 10-month low, while the factory orders-to-inventory ratio dipped to the weakest level in nine months, Bloomberg reported.

The report underlines ECB President Mario Draghi’s latest analysis of the economy, delivered on Thursday. While pointing to resilient domestic demand, he suggested that more stimulus may be needed by year-end as a global slowdown threatens to weigh on growth.

“Unless the PMI business activity and price indices pick up significantly in coming months, the combination of relatively weak growth and deflation signaled by the survey will fuel expectations that the ECB will step up its quantitative-easing program at the December meeting,” Chris Williamson, Markit’s chief economist, said in a statement.

Average selling prices for goods and services fell for the first time in three months in October, partly as manufacturers tried to boost sales, according to the report.

 Rich Discussion

Draghi told reporters in Malta that policy makers had a “rich discussion” about the instruments available to the ECB to bring consumer-price inflation back in line with the institution’s goal of just below 2%. The rate unexpectedly fell below zero in September.

“We want to be vigilant, as people used to say in the old times,” Draghi said, evoking language his predecessor Jean-Claude Trichet used to flag upcoming policy changes. On the cards are a cut to the deposit rate, an expansion of the ECB’s €1.1 trillion ($1.2 trillion) QE plan, and a range of other options to pump money into the economy.

Professional forecasters surveyed by the ECB cut their inflation projections through 2017 and their 2016 growth outlook, according to a report published Friday.

Markit said its gauge is in line with a quarterly expansion of 0.4%. While new business grew at the fastest rate in six months, encouraging firms to boost hiring, the rate of job creation “remains insufficient” to significantly reduce unemployment, it said. Joblessness in the region stood at 11% in August, the last month for which data are available.