Euro zone factory growth slows at start of 2016, PMI shows

LONDON - Factory growth across the euro zone slowed at the start of 2016 as incoming orders failed to show any meaningful increase, even though companies cut prices at the deepest rate for a year, a survey showed on Monday.

A worker from the SEAT factory, under the Volkswagen group, works on an engine of a SEAT Leon car, in Martorell near Barcelona December 5, 2014. REUTERS/Gustau Nacarino

Markit’s Purchasing Managers’ Index will be disappointing reading for the European Central Bank, which left policy unchanged in January but hinted more easing more could be coming within months.

The manufacturing PMI for the euro zone dropped to 52.3 from December’s 53.2. That was in line with an earlier flash estimate and still above the 50 mark that separates growth from contraction.

An index measuring output, which feeds into Wednesday’s composite PMI, also fell. It registered 53.4 compared with December’s 54.5, up from the flash 53.2 estimate.

Global markets have been battered since the start of this year, hitting stock markets, commodities and oil prices, as concern grew that the Chinese economy, the world’s second largest, is struggling.

“The euro zone’s manufacturing economy missed a beat at the start of the year. Growth of order books, exports and output all slowed,” said Chris Williamson, chief economist at survey compiler Markit.

“If the slowdown in business activity wasn’t enough to worry policymakers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained.”

January’s weakening came as companies offered steep discounts on their goods. A sub-index measuring output prices sank to 48.3 from 49.8, its lowest reading since January 2015.

Consumer prices rose just 0.4 percent last month, official data showed on Friday, nowhere near the ECB’s target of close to but just below 2 percent.

With inflation so low and growth remaining muted, the ECB is almost certain to cut its deposit rate even further into negative territory when it meets next month, a Reuters poll found last week.

There is also an even chance it will increase the 60 billion euros a month currently spent on buying bonds.