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Eurozone economy still in timid recovery: survey

A timid economic recovery in the eurozone is still holding, a closely-watched survey showed on Thursday (Aug 21), but at a pace that promises only negligible growth for the year. 

BRUSSELS: A timid economic recovery in the eurozone is still holding, a closely-watched survey showed on Thursday (Aug 21), but at a pace that promises only negligible growth for the year. This latest 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.

"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 for the currency union," said Rob Dobson, senior economist at the private Markit research group which published the data.

Markit's set of leading indicators - the purchasing managers' index (PMI) - turned in a figure of 52.8, above the 50-point signalling growth or downturn, but lower than a revised figure of 53.8 in July. At that level however, the region remained on course "to register growth of only around 0.3 per cent to 0.4 per cent in the third quarter, a level that is unlikely to stimulate any real turnaround in the labour market," Dobson added.

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

DEFLATION SHADOW

This sent alarm bells that the eurozone economy would fail to close a long period of double-digit unemployment and increased concerns that looming deflation could set back growth even further. The jobless rate in the 18-nation eurozone stands at 11.5 per cent, with youth unemployment at 23.1 per cent, and inflation remains at an ultra-low 0.4 per cent, way off the central bank target of just under 2.0 per cent. "Signs are that the modest job creation of recent months has stalled in August," Dobson said.

Broken down by country, Markit data continued to show fragility in the key economies of France and Germany. French data managed to hit the 50 mark in July, after three straight months of showing contraction, but the country was still mired in stagnation. At 54.9 points, Germany remained firmly in expansion territory, but this was lower than the 55.7 points in July, brought down by a drop in manufacturing output, a crucial sector.

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 European Economist for Capital Economics said the PMI data "will add to pressure on the European Central Bank to do more to support the flagging eurozone economy, even while other major central banks start to move in the opposite direction".

The ECB launched in June a group of measures to help the economy, but has for now declined to move further. Any extra ECB action would tend to stimulate activity, and also weaken the euro which would help exporters. This in turn would tend to push up prices. The ECB's essential target is to ensure price stability, as the main condition for growth, with inflation of just under 2.0 per cent.