MW: Eurozone data suggests ECB action to stay on hold
FRANKFURT--Purchasing managers survey data released Friday should come as a relief to the European Central Bank, as they show that at least for now the eurozone economy is maintaining its expected steady pace of growth, despite turmoil in China and emerging markets.
The composite PMI indicator produced by data provider Markit stood at 54.1 for August, beating the 53.9 recorded in July. A reading above 50 indicates economic expansion.
Mr. Ducrozet added that PMI sub-components "provided some reassurance that outright deflation remains a distant risk."
PMIs also provide a barometer that the ECB monitors. ECB chief Mario Draghi has cited the indicator in the past as a justification for policy moves, for example when he cut rates at his first meeting in November 2011.
Weak price pressures have raised speculation among some economists that the ECB will ultimately have to do more to get inflation back on target. Inflation was only 0.2% in July and might even be lower in August.
The ECB, which targets medium-term inflation of just under 2%, has said it would buy EUR60 billion ($66.9 billion) a month in mostly government bonds between March this year and at least September 2015.
But even if central bankers can take some relief for now, economists see dark clouds on the horizon later in the year.
Dominic Bryant of BNP Paribas said that while third-quarter growth looks like it will be around 0.5% on the quarter, "risks to subsequent quarters are building given the seemingly sharp slowdown in China, falling equity markets globally and a rising [euro]."
This may ultimately force the ECB to do more. "We continue to assume that the central bank is more likely to increase or extend its bond purchase program than reduce or terminate it early," said Christoph Weil of Commerzbank.
Mr. Weil said the ECB is likely to cut its growth forecast for this year in September to 1.4% from 1.5%. This "would still be higher than our forecast of 1.2%," he continued.
