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Eurozone’s Faltering Growth to Persist

Eurozone’s Faltering Growth to PersistEurozone’s Faltering Growth to Persist

The eurozone’s lackluster pace of growth is set to continue as the economy cools from a strong first-quarter performance, according to Markit Economics.

Its gauge of new business growth at manufacturing and services firms fell to a 16-month low in May, meaning output is likely to stay subdued in the coming months. The surveys suggest the 19-nation economy will grow 0.3% this quarter, down from 0.5% in the three months through March, Bloomberg reported.

The economy “seems unable to move out of low gear,” said Markit Chief Economist Chris Williamson in London. “Such a lackluster performance in the second quarter points to an ongoing lack of growth momentum, which in turn raises the prospect of policy makers seeking new ways to stimulate growth.”

Markit said its composite Purchasing Managers Index was at 53.1 in May—above the 50 level that divides expansion from contraction and higher than an initial estimate of 52.9. A measure of job creation hit a four-month high.

Across the region, growth picked up in Germany and France, while Italy showed a slowing to near stagnation.

Markit’s services index rose to 53.3, a three-month high and a notch above its flash reading of 53.1.

European Central Bank President Mario Draghi told a news conference that policy makers’ latest stimulus has yet to take full effect and that they are focusing on implementation. The ECB is committed to buying €80 billion ($89 billion) of assets a month until at least March, and corporate-bond purchases start next week.

He said according to the central bank’s latest staff economic projections, the ECB upgraded slightly its forecasts for both inflation and growth in the eurozone in 2016, but left its predictions for 2017 and 2018 unchanged.

He said, area-wide inflation would average 0.2% in 2016, and then accelerate to 1.3% in 2017 and 1.6% in 2018.

 ‘No Decision’ on Greece

“We had a presentation, but we had no decision,” he said. “The governing council acknowledges the significant progress made in the last few months,” Draghi said, but insisted that Greece had to implement the agreed reforms before any action could be taken.

“Once the prior actions will be implemented, the governing council will take a decision” to effectively allow Greek banks to participate again in the regular refinancing operations, he said.

Normally, in these, banks receive cash in the form of very low interest loans in return for “collateral”—high-quality assets, preferably sovereign bonds, placed at the central bank as guarantee.

But given the desperate state of Greece’s finances, its sovereign bonds have been classified as “junk” for some years, and are not normally eligible to be used as collateral.

Financialtribune.com