Euro-Area Economy Puts Another Dent in ECB Hopes for Rebound

(Bloomberg) -- The euro-area economy stumbled again this month, with a key indicator falling to the lowest in four years, denting expectations for an economic pickup after a summer slowdown.

Adding to worries, the composite PMI from IHS Markit also showed that employment and orders growth slowed and companies’ expectations dropped. The euro, which plunged earlier after a weak reading in Germany, was down 0.3 percent against the dollar.

Euro-Area Economy Puts Another Dent in ECB Hopes for Rebound

The figures will be another disappointment for European Central Bank policy makers, who are counting on a rebound this quarter as they prepare to start unwinding stimulus. They’ve acknowledged “fragilities’’ in the economy, but are holding to the line that the broad-based expansion remains intact.

Chief Economist Peter Praet said Thursday that downside risks have increased, but the overall outlook remains “broadly balanced.” Changing that view would be a big step for the ECB, which will have to confirm at its meeting in less than three weeks whether it will stop bond purchases at the end of the year as planned.

Euro-Area Economy Puts Another Dent in ECB Hopes for Rebound

The PMI continues a run of bad news for the euro area. Just this week, the OECD cut its forecast for economic growth and consumer confidence fell more than forecast.

Separate data on Friday confirmed Germany’s economy shrank for the first time in more than three years, with exports proving a major drag. The contraction was largely due to a temporary slump in the auto industry, but the weak PMI raises questions about the expected rebound.

What Our Economists Say...

“With other major surveys also pointing to a deceleration of growth, November’s reading will be watched closely by the ECB as policy makers focus on understanding whether the slowdown recorded in 3Q will be repeated in 4Q in advance of its December forecasts. It could well prompt a change to the ECB’s assessment of the balance of risks at its next meeting.”

--Maeva Cousin, Bloomberg Economics

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In the euro area, while the headline PMI reading still suggests overall quarterly economic growth of 0.3 percent, there are warnings scattered throughout the report.

Forward-looking indicators are “worryingly subdued,” according to Markit, and the weakness in the headline euro-zone number may not all be due to Germany. “Especially sluggish growth” was recorded “across the rest of the single-currency area,” it said.

“The economy faces a disappointing end of the year,” said Chris Williamson, chief business economist at IHS Markit. “The manufacturing-led slowdown is spilling over into services.”

Factory activity has led the cooling off this year, in part due to concern about rising protectionism and the trade dispute U.S. President Donald Trump has launched against China and the European Union. The PMI manufacturing index slipped to 51.5 in November and the gauge of services fell to 53.1, both the lowest in more than two years.

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