Slowing Euro-Area Manufacturing Adds to Case for ECB Action.

http://www.bloomberg.com/news/2014-09-01/slowing-euro-area-manufacturing-adds-to-case-for-ecb-stimulus.html

Euro-area manufacturing activity slowed more than initially estimated in August as Italian output contracted, adding to signs that the region’s economic recovery may need another boost of European Central Bank stimulus.

A Purchasing Managers’ Index fell to 50.7 from 51.8 in July, London-based Markit Economics said today. While the number remains above 50, indicating expansion, it’s less than the Aug. 21 preliminary reading of 50.8. Italian manufacturing unexpectedly shrank last month, while German factory growth was less than initially estimated.

Today’s report comes after ECB President Mario Draghi signaled that the 18-nation economy may need more stimulus to avoid a deflationary spiral. Inflation slowed to a fraction of the ECB’s mandate last month and investor bets on prices have become dislodged -- a condition Draghi has previously cited as justification for large-scale asset purchases.

“Euro-zone manufacturers are clearly finding life very difficult at the moment as current heightened geopolitical tensions add uncertainty to still challenging conditions in many countries,” said Howard Archer, an economist at IHS Global Insight in London. While he expects officials to hold fire this week, “it is looking ever more likely that the ECB will ultimately have to undertake some form of QE,” he said.

The euro rose after today’s report and traded at $1.3144 at 11:13 a.m. Frankfurt time, up 0.1 percent today.

Weakening Recoveries

In China, manufacturing slowed more than estimated last month, joining weaker-than-anticipated credit, production and investment data in suggesting the economy is losing momentum.

National PMI data for the euro area signal a broad-based slowdown in the manufacturing recoveries in most member countries. The French gauge showed the sharpest rate of decline since May 2013, while the Italy’s dropped back into contraction following 13 months of expansion, Markit said. Activity weakened in Spain, the Netherlands and Germany.

“Although some growth is better than no growth at all, the braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible,” said Rob Dobson, senior economist at Markit in London. “The slowdown in industry is likely to add further fuel to the fire for analysts expecting additional monetary or fiscal stimulus to be implemented.”

All Instruments

The inflation rate in the euro region fell to 0.3 percent in August, the lowest since October 2009, the European Union’s statistics office said last week, and the unemployment rate remained at 11.5 percent in July, near a record high.

Euro-area manufacturing output expanded less than initially estimated in August.