Eurozone recovery losing steam in wake of falling PMI

The purchasing managers' index for the Eurozone fell in November from 51.9 to 51.5, marking the second consecutive monthly fall. The dip was largely unexpected, with consensus predicting a small increase to 52. The service sector index dropped from 51.3 to 51.5, reaching a three-month low. The manufacturing index was up from 51.6 to 50.9, while exports also increased.

The disappointing numbers will raise fresh concerns as to whether the Eurozone recovery is robust enough to handle to setbacks. The news also follows poor GDP figures for the area, with growth of just 0.1 per cent quarter-on-quarter in the third quarter, from 0.3 per cent quarter-on-quarter in the second quarter.

Howard Archer, IHS Global Insight commented:

Looking ahead, the hope for the Eurozone has to be that a combination of recent steadily rising confidence, ultra accomodative monetary policy, very low inflation and reduced fiscal tightening will fuel gradual recovery. In addition, there has been some recent evidence of stabilizing labour markets

However, there are still serious growth constraints facing the Eurozone. Fiscal policy is still generally restrictive (despite the increased flexibility now being allowed on fiscal targets), credit conditions remain tight in many countries amid still significant banking sector problems, unemployment is elevated and is unlikely to come down markedly any time soon while consumer purchasing power is limited by low earnings growth.

The Eurozone recovery is likely to remain sluggish and will increase pressure of the European Central Bank to provide greater stimulus measures.