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Euro zone business activity stagnates as Draghi bows out

Euro zone business activity stagnated in October as demand withered, according to a downbeat survey published today just hours before European Central Bank President Mario Draghi makes his swansong appearance. 

The ECB last month cut its deposit rate deeper into negative territory and said it would revive its bond-buying programme indefinitely to cut borrowing costs and stimulate investment and growth in the euro zone. 

But inflation in the euro zone still languishes at less than half the ECB’s target and October’s preliminary Purchasing Managers’ Index (PMI) readings add weight to fears the economic outlook is darkening once again. 

IHS Markit’s flash composite PMI, seen as a good guide to economic health, was 50.2, just above September’s more than six-year low final reading of 50.1.

But it was still perilously close to the 50 mark that separates growth from contraction and below expectations in a Reuters poll for 50.3. 

Germany’s export-dependent manufacturing sector remained in contraction this month, earlier data showed, suggesting a third-quarter slowdown in Europe’s largest economy could stretch into the closing months of the year. 

French activity picked up more than expected, however, boosted mainly by a firmer service sector. 

Meanwhile, Norway’s central bank kept its main interest rate unchanged today, as predicted, as did Sweden’s. 

But the Riksbank surprised many by saying it expected to tighten policy in December, even though the economy is slowing more sharply than previously expected. 

IHS Markit said the euro zone PMIs indicated economic growth of just under 0.1% this quarter, below the 0.2% predicted in a Reuters poll last week. 

Giving little hope for a turnaround anytime soon, an index measuring new business rose only slightly to 49.1 from 48.7, chalking up its second month below the breakeven mark. 

A PMI for the bloc’s dominant service industry nudged up to 51.8 from September’s 51.6, which had been its lowest reading since the start of this year. Economists had expected 51.9. 

With the survey painting a gloomy picture, optimism among services firms was at its weakest since mid-2013. The business expectations index sank to 56.5 from 58.6. 

Manufacturers also had a bad October and activity contracted for a ninth month in a row, the PMI showed. 

It held steady at September’s 45.7, a low not seen in seven years and missing the median expectation for 46.

The manufacturing output index, which feeds into the composite PMI, was 46.2, just pipping last month’s 46.1 but its ninth sub-50 reading in a row. 

October’s weak results were despite factory gate prices falling for a fourth month. The output prices index was 48.9 compared to September’s 48.6.

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