Euro-area services and manufacturing grew less than initially estimated last month, leaving the economy facing near-stagnation as the European Central Bank (ECB) considers its options on further stimulus.
A composite Purchasing Managers Index (PMI) fell to 51.1 from 52.1 in October, London-based Markit Economics said today. The reading is the lowest in 16 months and points to economic growth of just 0.1 percent this quarter, according to Markit.
ECB President Mario Draghi leads the Governing Council in its last policy meeting of 2014 tomorrow, when it'll debate staff proposals on new tools to revive inflation and growth. While some policy makers have signaled they prefer to wait to assess current measures, the continuing deterioration in the outlook is increasing the pressure to act.
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"The survey results indicate that policy initiatives currently announced have yet to have a meaningful impact on business or consumer confidence," said Chris Williamson, chief economist at Markit. "More aggressive measures are likely to be needed."
The euro slid to a two-year low against the dollar after the report and traded down 0.4 percent at $1.2333 at 11:59 a.m. Frankfurt time. The Stoxx Europe 600 Index climbed 0.5 percent on bets the ECB will expand stimulus.
While the composite PMI remains above the 50-point mark that divides expansion from contraction, the reading is lower than an estimate of 51.4 published on Nov. 20. Williamson said there's a "strong likelihood" that the near-stagnation in the 18-nation economy will become a "renewed contraction" early next year.
A gauge for the services industry fell to 51.1 this month from 52.3 in October, according to today's report. A measure of factory activity declined to 50.1, lower than the estimate of 50.4, Markit said on Dec. 1.
The weakening economic momentum was highlighted by a decline in new orders, the first in 16 months. Across the region, France was the euro area's weakest performer, with its composite index falling to 47.9 from 48.2, below an initial estimate.
The pace of growth declined to a 17-month low in Germany and a nine-month low Spain, while Italy's economic activity accelerated slightly, Markit said.
Oil Prices
Coupled with the waning growth in the euro region has been a slowdown of inflation. A slump in energy prices has contributed to this, a trend that will probably be reinforced by the decision last week by the Organization of Petroleum Exporting Countries not to cut oil output.
Inflation in the currency bloc slowed to 0.3 percent in November, matching a five-year low. Markit said today that price pressures "remained subdued" in November, with input costs rising the least in seven months.
The slump in oil prices prompted UBS Group AG to predict in a report today that the ECB will start large-scale quantitative easing in March. It previously forecast the central bank would refrain from broad-based purchases of government bonds.
Since June, the ECB has cut interest rates to record lows and started buying covered bonds and asset-backed securities. The institution plans to boost its balance sheet toward early-2012 levels, signaling it'll add as much as 1 trillion euros in assets.
A second round of long-term loans to banks next week will be a test of the strength of current stimulus measures, after the first round in September attracted lower demand than analysts forecast.
–With assistance from Ainhoa Goyeneche in London.
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