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Eurozone posts lowest business activity in 2014, retail sales dive
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EUROZONE business grew at the slowest rate this year in August and retail sales plummeted in July as escalating tension between Russia and Ukraine subdued spending and investment, surveys showed yesterday.
Signs of slower growth, coupled with firms cutting prices at a faster rate but still failing to drum up sales, will add to pressure on the European Central Bank ahead of its monetary policy meeting today.
“The euro area is still just about expanding but the direction is downwards and the risk is we get more of the same as we move through the next few months as the geopolitical factors weigh heavily,” said Ken Wattret at BNP Paribas.
“It’s pretty obvious the ECB is worried, and rightly so. The pressure will continue.”
Optimism about the future among service firms, which dominate the bloc’s economy, fell to its lowest level this year amid rising tension over Ukraine that triggered sanctions from the West and countermeasures from Russia.
Markit’s Composite Purchasing Managers’ Index, which is based on surveys of thousands of companies across the region and is seen as a good gauge of growth, fell to an eight-month low of 52.5, well below July’s 53.8.
That final reading was also weaker than a preliminary estimate of 52.8, although it was the 14th month above the 50 line that denotes growth.
The eurozone economy stalled in the second quarter and private sector growth in Germany, Europe’s powerhouse, eased to a 10-month low in August.
In France, the bloc’s second-biggest economy, activity fell for a fourth month while business activity in Italy’s service sector unexpectedly shrank for the first time in five months.
In another sign of weakness, retail sales across the bloc fell 0.4 percent in July as expected, the first drop this year.
In Britain, the services industry grew at the fastest pace in nearly a year last month, suggesting some companies were struggling to keep up with demand, a factor the Bank of England is likely to note as its ponders when to raise interest rates.
While no change is expected at its Monetary Policy Committee meeting today, the BOE is touted to be the first major central bank to raise interest rates, but not until early next year.
Speculation the ECB is preparing to buy assets spiked after bank President Mario Draghi said last month that the bank was prepared to respond with all its available tools if inflation — which was just 0.3 percent in August — were to drop further.
The composite output price PMI, which has been sub-50 since April 2012, fell to a three-month low of 48.9 from July’s 49 as firms cut prices to drum up trade.
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