Survey finds eurozone recovery even more subdued than thought, but retail sales surge

LONDON – A contrasting picture of the economic recovery in the 18-country eurozone emerged Friday.

While a closely watched survey found that the recovery proved to be even more subdued than previously thought during September, official European data suggested that consumers were in buoyant mood during August.

Financial information company Markit said its monthly purchasing managers’ index, a gauge of business activity, was at 52.0 points in September. That’s a 10-month low and down on the initial estimate of 52.3.

Though anything above 50 indicates expansion, the survey provides further evidence that the eurozone economy is crawling forward at best. Markit reckons the figures point to growth of 0.2 to 0.3 per cent during the third quarter. Though that would be an improvement from the zero growth recorded in the second quarter, economic activity would still be way short of levels needed to make a dent in sky-high unemployment rates across the region.

Furthermore, Markit found a big disparity in economic performance across the region. In particular, it warned that the downturns in France and Italy, the eurozone’s number 2 and 3 economies, are getting more pronounced. The two countries are often accused for being slow in reforming their economies to make them more competitive.

“The overall picture is one of a euro area economy that is struggling against multiple headwinds,” said Chris Williamson, Markit’s chief economist. “These include a lack of domestic demand in many countries, subdued bank lending, sanctions with Russia and a reluctance of companies to expand in the face of an uncertain economic outlook.”

For all the disappointments, there are some bright spots, notably Ireland and Spain. Both economies have been at the forefront of the region’s debt crisis over the past few years. Germany, Europe’s biggest economy, also appears to have gotten over a mid-year hiatus.

Though the PMI data were mixed at best, official figures from the European Union’s statistics agency showed retail sales jumping by a monthly 1.2 per cent in August. That contrasts with expectations in the markets for a modest monthly fall and was largely due to big increases in Germany and France.

“Overall, while today’s data included some positive news, the eurozone economy still appears to have been weak in the third quarter,” said Sarah Pemberton, European economist at Capital Economics. “Without further policy support, the recovery may struggle to gain any traction.”

The European Central Bank held off from providing a further stimulus to the eurozone economy following its monthly policy meeting on Thursday. However, ECB President Mario Draghi has insisted that the bank could do more in the months ahead if the recovery fails to pick up or if inflation remains way below target. One option is that it enacts a monetary stimulus on the lines pursued by the U.S. Federal Reserve over the past few years.