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Key gauge of economic activity in eurozone falls in November

Markit purchasing managers' index fell in November to three-month low of 51.5 points



LONDON—Further evidence emerged to show that the paltry economic recovery in the 17-country eurozone is already losing steam, just months after it emerged from its longest-ever recession.

Financial information company Markit said its purchasing managers’ index—a gauge of business activity—fell in November to a three-month low of 51.5 points from 51.9 the previous month.

The fall was unexpected—most economists had been predicting a modest rise to around 52.

Even though the index remained above the 50 mark that indicates expansion for the fifth month running, the surprise decline adds to the recent weight of evidence suggesting that the eurozone recovery is not gaining traction.

Figures last week showed that the eurozone economy only grew 0.1 per cent in the third quarter from the previous three-month period, down on the second quarter’s 0.3 per cent advance.

Though details from many individual countries have yet to be collected, the latest survey did point to starkly different conditions across the region.

While France lagged, Germany’s growth appears to be gaining momentum.

Markit also found worrisome signs of a drop in prices, raising concerns of deflation.

Deflation—a chronic fall in prices that can hurt consumer spending for years—has become a key concern for European policymakers after recent figures showed the consumer price inflation rate was only 0.7 per cent in October.

“Prices charged for goods and services fell at a faster rate in November, despite firms’ input costs rising at the steepest clip for over a year,” said Markit’s chief economist Chris Williamson.

With growth muted and inflation waning, there’s growing speculation that the European Central Bank may loosen monetary policy further.

Even though it cut its benchmark rate to a record low of 0.25 per cent this month, it still has some tools at its disposal.

It could, for instance, lower the rate for bank deposits at the ECB to below zero, which could get them to loan money rather than hoard it.

Officials at the bank have also broached the possibility of large-scale bond purchases.

“The ECB’s Governing Council may see the need to intervene further to prop up the fledgling recovery, and our expectation remains for further non-standard support early in the new year,” said Timo del Carpio, European economist at RBC Capital Markets.

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