Eurozone economic growth is refusing to crumble and activity even bounced back this month, according to a closely watched survey.
The purchasing managers’ index for the 15-country region rose unexpectedly in February, pointing to a recovery in confidence after recent financial market turmoil. The survey helped “underscore the fact that the fundamentals remain sound at the moment”, José Manuel González-Páramo, executive board member of the European Central Bank, told Reuters Television.
But the results still pointed to a gradual trend slowdown that would increase pressure on the ECB to follow the US Federal Reserve and start cutting interest rates, analysts said.
They suggested growth was continuing at roughly the same pace in the final quarter of last year, when gross domestic product rose by 0.4 per cent. “We have a slowing in an orderly fashion; we’re not falling off a cliff,” said Jörg Krämer at Commerzbank in Frankfurt.
Service sector growth had stagnated in January but rebounded significantly this month, according to the survey.
The manufacturing sector component of the index dropped, although without pointing to any dramatic decline in growth. The “composite” index rose from 51.8 points in January to a two-month high of 52.7. A figure of more than 50 is regarded as consistent with growth.
The apparent lack of any looming economic disaster could encourage the ECB to maintain a hawkish tone – especially with eurozone inflation at a 14-year high of 3.2 per cent, beyond its target of an annual rate “below but close” to 2 per cent.
Higher oil prices are threatening to force upward revisions to ECB inflation forecasts next month. Combating inflation remains the central bank’s top priority.
But analysts expect the ECB to lower its eurozone growth forecasts next month. Compared with other weak periods in recent years, no early bounce-back seems likely this time – especially with US growth deteriorating and the effects of higher borrowing costs feeding through into the real economy.
The ECB faces having to judge how quickly a slowdown in growth will ease inflationary pressures.
Although the purchasing managers’ indices were stronger than expected, other data pointed to significant weaknesses.
In France, consumer spending fell 1.2 per cent in January – the largest fall since September 2006 – suggesting one of the most important engines of French growth in recent years was starting to splutter.
Eurozone industrial orders fell by 3.6 per cent in December, according to Eurostat, the European Union’s statistical office. Such weakness could feed through into lower production figures.
Earlier this month, financial markets had priced in a cut in eurozone interest rates as early as April. On Friday the expectation was that a cut was unlikely until June.