Europe’s Growth Pickup Fails to Counter Deflation Pressures

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Have Draghi's QE Measures Done Enough to Impress?

Accelerating economic growth in the 19-nation euro region hasn’t yet left its mark on inflation.

A survey of purchasing managers by Markit Economics showed deflationary pressures persisted in November, with output prices declining for a second month. While a composite gauge of manufacturing and services rose less than initially reported, Markit’s measures still signal economic growth of 0.4 percent in the fourth quarter, the London-based company said Thursday.

The report comes as the European Central Bank prepares to cut interest rates and expand a 1.1 trillion-euro ($1.2 trillion) asset-purchase plan to assure investors it can fulfill its mandate of keeping inflation just below 2 percent in the medium term. Consumer prices rose 0.1 percent in November, and most economists expect the bank to lower its inflation projections.

“The ECB’s concerns over price stability are given further credence by the survey,” said Chris Williamson, chief economist at Markit. “It seems faster growth is not showing any signs of generating inflation.”

The composite PMI rose to 54.2 in November from 53.9 in October. That compares with a Nov. 23 estimate of 54.4. A reading above 50 indicates growth.

Rates of expansion in output, new orders and employment were all at or close to the fastest in 4 1/2 years, and a modest increase in backlogs of work suggests solid growth will continue, Markit said.

Moribund France

While all nations covered in the survey reported an expansion in economic activity in November, a measure for France indicated weaker growth.

French business “remains moribund,” and the economy may grow only 0.2 percent this quarter, Williamson said.

Growth is seen at 0.3 percent in Italy, 0.5 percent in Germany, 0.6 percent in Spain and 1 percent in Ireland, according to the report.

Separately, Eurostat said on Thursday that euro-area retail sales fell 0.1 percent in October from the previous month. Sales were up 2.5 percent from a year earlier.

The ECB will announce its latest policy decision at 1:45 p.m. in Frankfurt, followed 45 minutes later by a press conference led by President Mario Draghi.

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