'Surprise surge' in European business growth

LONDON • Business growth in the euro zone accelerated unexpectedly this month as steeper price-cutting drove an increase in new orders and enabled companies to build up a larger backlog of work, according to a survey released yesterday.

The fairly upbeat survey, one of the earliest monthly economic indicators, suggests the massive bond-buying programme by the European Central Bank (ECB) and a weaker euro could finally be having an impact on growth.

However, signs that businesses are cutting prices at a faster rate will be disappointing for the ECB, which has been finding it tough to bring inflation - at just 0.2 per cent last month - anywhere near its 2 per cent target ceiling.

"The economy overall is showing resilience. The accumulation of work backlogs suggests continued steady growth,"said senior economist Rob Dobson at survey compiler Markit.

Markit's Composite Flash Purchasing Managers' Index (PMI), based on surveys of thousands of firms and seen as a good guide to growth, rose to 54.1 this month from 53.9 last month. A Reuters poll had suggested a dip to 53.8. Since mid-2013, the headline index has topped the 50 level dividing growth and contraction.

Mr Dobson said the PMI pointed to 0.4 per cent growth in the bloc's gross domestic product for the third quarter, matching the prediction in a Reuters poll last week. To spur demand, firms have cut prices since April 2012, and they did so at a steeper rate this month than last month.

Mr Dobson said the ECB and other policymakers would be watching price trends.

The discounting helped a PMI covering the bloc's dominant service industry rise to 54.3 from 54.0, while a sister index covering manufacturers held steady at last month's 52.4. The Reuters poll had respective predictions for 54.0 and 52.2.

The euro has lost around 8 per cent against the greenback since the start of the year. The ECB's huge bond purchases and the Greek debt crisis have made the bloc's goods cheaper abroad. As a result, demand for manufactured goods went up, and the new orders sub-index climbed to 52.7 from 52.2 - matching a level set in May and June that had not been seen in over a year.

Meanwhile, service firms were able to build up a surfeit of work. The backlogs of work index jumped to 51.4 from 51.1 - since mid-2011, it has been higher only once, in February.


A version of this article appeared in the print edition of The Straits Times on August 22, 2015, with the headline ''Surprise surge' in European business growth'. Print Edition | Subscribe