Eurozone deflationary pressures intensified in February. Manufacturers reported the steepest drop in their purchase prices in over six-and-a-half years with France leading the way. Moreover, Markit reports France is back in contraction with the Eurozone Composite PMI still positive but weakening.

Eurozone Economic Growth at 13-Month Low as France Contracts

  • Final Eurozone Composite Output Index: 53.0 (Flash 52.7, January 53.6)
  • Final Eurozone Services Business Activity Index: 53.3 (Flash 53.0, January 53.6)

February saw a broad-based slowdown of the eurozone private sector economy. Rates of output expansion eased across Germany, Italy, Spain and
Ireland, while France fell back into contraction for the first time in 13 months. Price pressures also remained on the downside, with modest reductions registered for both output charges and input costs.

Deflationary pressures intensified in February. Average prices charged for goods and services both declined at faster rates, as companies competed to win new business.

Selling price reductions were seen in France, Spain and Italy, with the decrease especially sharp in France. Germany and Ireland both registered
higher output prices, as increases at service providers offset reductions at manufacturers.

Meanwhile, average input costs fell for the second month running and to a slightly greater extent than in January. Manufacturers reported the steepest drop in their purchase prices in over six-and-a-half years.


Chris Williamson, Chief Economist at Markit said: “The final eurozone PMI came in slightly ahead of the earlier flash estimate, but still showed the pace of growth waning for a second successive month in February to the slowest for just over a year. “The survey data raise the prospect of economic growth deteriorating further from the already meager pace seen late last year, when GDP rose only 0.3%.

“Germany and Italy both reported the smallest expansions for five months, while Spain recorded the worst growth for 14 months. It was France, however, that remained the weakest link, seeing business activity fall for the first time in just over a year.

“While Germany, Italy and Spain are all seeing PMI surveys signal modest GDP growth in the first quarter so far, France appears to be at risk of stagnating.

“The slowdown in growth of business activity, accompanied by a similar easing in the pace of job creation and the steepest fall in prices charged for a year, suggest that the region’s recovery is losing momentum. The broad-based disappointment ups the odds of the ECB acting aggressively to avoid another downturn.”

Whether or not central banks act aggressively, another downturn is baked in the cake. The refugee crisis compounds the situation.

Regardless, what can ECB president Mario Draghi do? Cut rates further into negative territory? Buy more assets? What good would any of that do?

Mike “Mish” Shedlock