Eurozone economy still in timid recovery: survey

Alex Pigman
AFP
The latest eurozone data is likely to strengthen the views of those who hold that the European Central Bank will eventually take extra measures to inject cash into the single-currency zone
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The latest eurozone data is likely to strengthen the views of those who hold that the European Central Bank will eventually take extra measures to inject cash into the single-currency zone (AFP Photo/Daniel Reinhardt)

Brussels (AFP) - A timid economic recovery in the eurozone is still holding, a closely-watched survey showed on Thursday, but at a pace that promises only negligible growth for the year.

The latest data pushed down eurozone government borrowing costs, with traders more confident that the European Central Bank will take extra measures to inject cash into the single-currency zone.

"The eurozone economy continued to make steady progress in August, as the region looks to bounce back following the recent weaker-than-expected GDP (gross domestic product) readings," said Rob Dobson, senior economist at the private Markit research group that published the data.

Still, the bloc looks set "to register growth of only around 0.3-0.4 percent in the third quarter, a level that is unlikely to stimulate any real turnaround in the labour market," Dobson added.

Markit's set of leading indicators -- the purchasing managers' index (PMI) -- turned in a figure of 52.8, above the 50 points that signal expansion but lower than a revised figure of 53.8 in July.

This followed last week's official data that showed the eurozone ground to a halt in the second quarter, with none of the bloc's three biggest economies -- Germany, France and Italy -- registering growth.


- Deflation shadow -


The standstill set off alarm bells that the eurozone economy is not recovering fast enough to bring down double-digit unemployment, and increased concerns that looming deflation could set back growth even further.

The survey data on Thursday sent yields on debt from Spain to below 2.4 percent, a near record low, and Portugal to 3.29 percent.

Martin van Vliet, an analyst at ING, said the data will "undoubtedly reinforce pressure on the ECB to do more to support the recovery and bring inflation back to the target".

The jobless rate in the 18-nation eurozone stands at 11.5 percent, with youth unemployment at 23.1 percent. Adding to concerns at the ECB, inflation remains at 0.4 percent, way off the central bank's target of just under 2.0 percent.

"Signs are that the modest job creation of recent months has stalled in August," Markit's Dobson said.

Broken down by country, Markit data continued to show fragility in the top economies of France and Germany.

French data managed to hit the 50 mark in July after three straight months of contraction, but the country's stalling economy was still well short of a turnaround.

And in Germany, output dropped to 54.9 points from 55.7 points in July due to a fall in manufacturing output -- a crucial sector in the eurozone's powerhouse.

In Germany, "the concern is the divergent trends within the economy, with the manufacturing sector losing further momentum," said Oliver Kolodseike, a Markit economist.

"Production growth was the weakest in over a year and employment was cut for the third month running," he said.

Jennifer McKeown, senior economist for Capital Economics, said the data "will add to pressure" on the ECB to do more to stimulate growth "while other major central banks start to move in the opposite direction".

The ECB in June launched a group of measures to help kickstart the bloc's economy, including taking one of its key rates into negative territory for the first time, but has declined to move further.

Any extra ECB action would likely aim to stimulate lending and business activity and also weaken the euro, which would help exporters and tend to push up prices.

But tensions in Eastern Europe over Ukraine have damaged hopes for a swifter, export-led recovery in the eurozone.

On Monday, data showed that exports from the 18-nation single currency zone dipped by 0.5 percent as economic crisis in Russia and sluggish demand from Turkey took their toll.