The eurozone seems set for more weak growth this year as we learned that the region’s economy is barely expanding.
Surveys of thousands of companies show they are limping along, failing to drive up business activity even as they cut prices further.
Markit, the organisation that carried out those surveys says they indicate eurozone growth in the last three months of the year was just 0.1 percent, with the biggest economy, Germany, managing a stuttering performance.
The second largest, France, is also a major worry according to Jeremy Stretch, Head of Forex Strategy, CIBC: “If we are going to see further weakness in the French economy, then I think that will really writ large the degrees of concern within the eurozone, very much at its heart. And I think that is very much going to be the primary concern. However, having said that, I think the outlook for Germany is not quite as doom-laden as some of the assumptions might have suggested in the back end of Q4.”
Italy’s service sector shrank for the first time in three months in December while overall business activity in France contracted, Markit’s Purchasing Managers’ Indexes (PMIs) showed.
Markit’s final December Eurozone Composite PMI, based on surveys of thousands of companies across the region, is seen as a good indicator of growth.
The European Central Bank now has to find effective stimulus measures.
Lowering interest rates to virtually nothing and super cheap loans for banks didn’t work, so ECB chief Mario Draghi has to do what central banks in the US, Britain and Japan did, that is buy up government debt to pump money into the economy.
But many economists are not convinced if will be effective. Jane Foley, Head of Forex Strategy at Rabobank said: “Bond yields across the board are now extremely low, and growth is also extremely low. So you’ve got to argue that a marginal decrease in interest rates from their already low levels is unlikely to bring a boom to either growth or inflation.”
Even with ECB action, the feeling among economists is that inflation and growth are likely to remain painfully low, sparking concerns of another financial crisis, not helped by the renewed fears that Greece might be forced to leave the eurozone.
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