Oct 3 (Reuters) - Euro zone business grew at its slowest rate this year in September on tumbling demand, surveys showed on Friday, as the bloc struggles to add momentum to its fragile economic recovery.
Germany’s private sector expanded at a robust pace last month, pointing to an economic rebound between July-September after Europe’s biggest economy unexpectedly shrank the quarter before.
However, business growth in the euro zone’s number two and three economies - France and Italy - contracted, suggesting stagnation or worse there could continue.
Despite firms cutting prices more deeply, the common thread across most of the surveys in the euro zone was that of weak demand, with businesses and consumers lacking the confidence to spend in economies plagued by high unemployment and years of austerity.
This mirrors order book conditions for factories in much of Asia as well.
The data are likely to disappoint policymakers yet again, a day after the European Central Bank outlined its plans to buy securitised debt in a bid to revive lending and boost demand.
“The PMIs reflect a familiar dangerous trend of low demand and weak producer pricing power which reinforces concerns on the effectiveness of the ECB’s stimulus,” said Lena Komileva, chief economist at G+ Economics in London.
“The ECB does not have much room for error with the starting point of close to zero rate of inflation and growth.”
President Mario Draghi said on Thursday the ECB would start buying covered bonds this month and other bundles of securitised debt by year-end, but did not provide any estimate of the target size of the programme which is planned to run for two years.
He also offered no hints of a quantitative easing programme involving the purchase of sovereign debt, disappointing markets that were hoping the ECB would do more.
A Reuters poll last week predicted the ECB would spend 300 billion euros in the ABS programme, while banks will likely bid for 175 billion euros at December’s targeted loan tender.
In the first tranche, a meagre 82.6 billion euros was taken up by banks.
Together, it means the ECB will eventually expand its balance sheet by only about half of the just over one trillion euros it lent out under the long-term refinancing operations in late 2011 and early 2012.
In Britain, growth in the services industry eased slightly and a composite measure for the whole of the private sector dropped to its lowest in six months.
Although still comfortably in growth territory, that raises risks of an end-of-year slowdown for the UK economy after it enjoyed a stellar few quarters of growth. This could hurt expectations of a rate hike from the Bank of England in the first quarter of next year.
Markit’s Composite Purchasing Managers’ Index (PMI), based on surveys of thousands of companies across the euro zone and seen as a good gauge of growth, fell to a ten-month low of 52.0, below August’s 52.5 and weaker than the flash estimate of 52.3.
It was, however, the 15th month that the index has remained above the 50 line that denotes growth.
Worryingly though, the new orders sub-index, which measures demand, eased last month to the lowest in almost a year while firms cut prices by the most in 14 months.
Euro zone inflation is at a five-year low of just 0.3 percent and the economy stagnated in the second quarter.
Low inflation could provide some impetus to the economy, shoring up consumers’ purchasing power. Indeed, official euro zone data also released Friday showed retail sales increased much more than expected in August, pointing to stronger demand from households.
However, anaemic consumer price growth is more widely seen as a signifier of the euro zone’s economic weakness and, if it continues, could prompt policymakers to look at other levers to jump-start activity.
“The waning of growth signaled by the PMI will apply further pressure on the ECB to broaden the scope of its purchases, to not only buy riskier asset-backed securities but to also start purchasing government debt,” said Chris Williamson, chief economist at Markit.
Economists in a Reuters poll last week gave a 40 percent chance of such a move by the ECB. (Editing by Toby Chopra)