Eurozone Data Point to Slowdown -- Update

By Paul Hannon 

        The eurozone's economy slowed slightly in April, but continued to grow at a faster pace than in recent years, according to surveys of purchasing managers.
        The surveys continue to indicate that the eurozone economy has emerged from a long period of near stagnation, aided by lower oil prices, a weakening euro and firming confidence following the European Central Bank's launch of a new stimulus program.
        But they also point to continued fragilities that will place a limit on the pace of recovery. The French economy edged back toward stagnation as export orders fell at the fastest rate in six months, an indication that even the much-weakened euro can't offset a loss of competitiveness in the eurozone's second-largest member.
        "Today's data demonstrate the danger in assuming that a weaker euro and cheaper oil are on their own enough to generate a sustained eurozone recovery," said Tom Rogers, an economic adviser to Ernst & Young. "More needs to be done in some countries, such as in France."
        Speaking before the survey's results were published, the ECB's chief economist said that governments must push ahead with needed reforms to ensure the recovery is sustained and raise its "speed limit."
        "The euro area needs a combination of policies for the cyclical recovery we are seeing to become a lasting one," said Peter Praet. "Accommodative monetary policy and determined structural reforms need to go hand-in-hand."
        The slowdown may also reflect growing concerns about the Greek government's ability to repay its debts and remain a part of the currency area. Three months after winning elections, Greece's new government remains at loggerheads with its European creditors--led by Germany--over its EUR240 billion ($257.8 billion) bailout program.
        A separate survey of consumers released on Wednesday revealed a surprise weakening of confidence in April, the first in five months, that appeared to be related to worries over Greece.
        "There are signs of increased risk aversion creeping in among businesses and their customers, linked in some cases to worries about Greece, which is likely to have dampened demand," said Chris Williamson, chief economist at financial-data provider Markit.
        Markit, which surveys more than 5,000 businesses across the eurozone, said on Thursday that its composite purchasing managers index--a measure of activity in the manufacturing and services sectors--fell to 53.5 in April from 54.0 in March. A reading below 50 indicates activity is declining, while a reading above that level indicates it is increasing.
        As with France, activity in Germany slowed over the month. But Markit said that activity in other parts of the currency area grew at the fastest pace since August 2007.
        The surveys indicated that growth is likely to be sustained, although new orders slowed slightly from March's four-year high. In response, businesses hired new workers at the fastest pace since August 2011, although it will likely take many months to return unemployment to precrisis levels from the 11.3% rate recorded in February.
        The ECB in March launched a program of quantitative easing in which it will buy more than EUR1 trillion of mostly government bonds by September 2016, using newly created money. Its main goal is to lift the inflation rate to just under 2%. In March, consumer prices were 0.1% lower than a year earlier.
        The surveys of purchasing managers underlined the scale of the challenge confronting the ECB, since they showed that businesses continued to cut their prices despite seeing their own costs rise.
        Todd Buell in Frankfurt contributed to this article.
        Write to Paul Hannon at paul.hannon@wsj.com
        (END) Dow Jones Newswires

        April 23, 2015 06:39 ET (10:39 GMT)

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