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 A survey out of China reinforced concerns of a minor slowdown in
the world's second biggest economy while a sister index underscored
an ongoing divergence between France, the bloc's second biggest
economy, and the rest of the 18-member currency union.
"The euro zone is most at risk of a global demand shock given the
chills emanating from China's deleveraging across emerging markets,
North America's current 'frozen' growth patch and the fact that the
U.S. is exporting less of its growth to the rest of the world," said
Lena Komileva at G+ Economics.
Figures due later on Thursday from the United States are expected to
show a marked easing of the pace of growth in its manufacturing
industry.
The flash Chinese Markit/HSBC PMI fell to a seven-month low of 48.3
in February from January's 49.5, although some analysts cautioned
against reading too much into the report, noting it was a
shorter-than-usual snapshot.
Anything below 50 indicates a contraction.
"Today's poor PMI numbers add to the raft of survey and activity
data showing that growth momentum in China is clearly slowing after
having peaked last summer," said Nikolaus Keis at UniCredit.
"However, one should not read too much into a single number that may
have been additionally depressed by the Lunar New Year holidays."
After the earlier disappointing surveys from China the yen, which
often gains in line with investors' aversion to risk, got a leg up
against its rivals but markets were little moved after European
figures.
FLAGGING FRANCE
Markit's Eurozone Composite PMI, which is based on surveys of
thousands of companies and is seen as a good guide to growth, dipped
to 52.7, just below January's 31-month high of 52.9.
That missed expectations in a Reuters poll for a modest rise to 53.1
but marked the eighth month the index has been above the 50 level.
"The story behind the euro zone PMIs remains one of an increasingly
fragile recovery under way amid growing divergence between the
union's largest economies, global growth headwinds and persistent
euro strength," Komileva said.
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The overall index masked news France is lagging far behind its
European peers, pouring cold water on hopes for a recovery gathering
momentum in the country after it expanded 0.3 percent in the fourth
quarter.
"All in all, it remains to be seen if the first quarter of 2014 will
confirm the beginning of the French recovery or of a longer period
of stagnation," said Julien Manceaux at ING.
Still, Markit said the latest data point to 0.5 percent economic
growth in the bloc this quarter, stronger than the 0.3 percent
predicted in a Reuters poll published last week.
But while the recovery across the euro zone appears fairly
broad-based, with growth across private industry near 2-1/2 year
highs, firms cut prices again to drum up trade, which may further
stoke fears of deflation in the bloc.
A composite prices charged index showed firms have cut prices every
month for nearly two years, suggesting inflation is not going up
anytime soon.
Inflation dropped unexpectedly to just 0.7 percent across the euro
zone in January, official data showed last month, well below the
European Central Bank's 2 percent target ceiling.
Falling inflation has increased pressure on the ECB to consider
fresh policy measures to counter deflation risks and support a
fragile recovery that appears to be running out of steam.
But with few options available, having already slashed its main
interest rate to near zero and given more than 1 trillion euros of
cheap cash to banks for a three-year period, the ECB held policy
steady when it met earlier this month.
(Editing by Alison Williams)
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