Euro zone price discounting drives growth in activity

[April 07, 2015]  By Jonathan Cable

LONDON (Reuters) - Price discounting drove growth in all of the euro zone's major economies in March, helping business activity increase at its fastest rate for nearly a year, a survey showed on Tuesday.

New orders came in at their fastest rate since May 2011 and the survey found that companies have now been cutting prices for three years, although not as sharply in March as before.

Nevertheless, the Markit survey provided some welcome news for the European Central Bank (ECB) just weeks after it embarked on a trillion-euro asset-purchase program.

The private sector in Germany, Europe's largest economy, grew at its fastest pace in eight months and although it also increased in France, the pace of expansion slowed.

Italy's service industry returned to growth, fuelling hopes of an economic recovery there after years of on-off recession, and Spain's expanded at its fastest pace since August.
 

"France is lagging behind a little bit but the others are doing pretty well. It just shows that quantitative easing was working even before the ECB bought a single bond," Soctiabank's Alan Clarke said.

"It's vindicating the ECB for what it is doing."

Official data showed euro zone consumer prices fell again in March as expected but that the decline was the smallest this year. Industrial producer prices declined by less than expected in February from a year earlier.

"Encouragingly for the ECB, there was further evidence in the services survey that deflationary tendencies are easing in the euro zone," IHS Global Insight's Howard Archer said.

Markit's final March Composite Purchasing Managers' Index (PMI), seen as a good indicator of growth, stood at 54.0, a touch below the preliminary estimate of 54.1 but well ahead of February's 53.3. A reading above 50 implies growth.

The financial information firm said the PMIs pointed to first quarter growth of 0.3 percent, slightly less than the 0.4 percent predicted in a Reuters poll taken last month.

Price-cutting also helped drive up service industry activity at its fastest pace in eight months. The March services PMI rose to 54.2 from 53.7, just below the flash 54.3 estimate.

With recovery gathering steam and confidence growing because of the ECB's QE program, service companies were at their most optimistic since May 2011. The business expectations sub-index came in at 64.8 compared with February's 64.1.

Sentix research group's index tracking morale among investors and analysts in the euro zone climbed to its highest level since August 2007 this month as they took heart from the European Central Bank's bond-buying program.

(Editing by Louise Ireland)

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