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Euro zone Heads into the Danger Zone

Dec 03,2014  Market News  Comment: 0

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New York City, New York – (StockNewsDesk) – 12/03/2014 — The economy of the euro zone has resumed its path towards recession. A couple of economic indicators released today show signs of fragility in the economy. The retail sales data, service Purchasing Managers’ Index (PMI) and Market Composite PMI came in below expectations. Not so long ago, the European Commission’s chief had taken a stern action of infusing fresh stimulus into the economy. The risk of rising deflation might be primarily responsible for contraction in the economy.

Retail sales data, which is a barometer to measure investor sentiment and customer spending, came in below expectations. The retail sales data grew by 0.4% compared to expectations of 0.6%. However, it fared better than the earlier year’s figure of – 1.2%. On an annualized basis, retail sales in the euro zone increased to 1.4% compared to estimates of 1.2%.Business activity in the euro zone fell to 16-month low levels. This indicates a slowing economy. The euro zone composite PMI inched closer to the 50-mark. 50.0 draws a line between expansion and contraction. The composite PMI is still below expectations at 51.1 compared to the Street’s estimates of 51.4. This is also below the earlier period’s reading of 52.1. The composite PMI data includes both manufacturing and services data.

Euro zone Heads into the Danger Zone

The gauge measuring new business activity fell below the 50-mark level to 49.7 from earlier period’s reading of 50.8, indicating a contraction. The service PMI is also responsible for pulling the composite PMI down. The service PMI came in at 51.1 compared to October’s reading of 52.3. This is also below forecasts of 51.3. The output index also disappointed investors by providing a reading below the 50-mark at 47.1.

ECB has a mammoth task ahead of itself given that the euro zone’s Gross Domestic Product (GDP) is likely to grow marginally at 0.1%. The inflation rate of the area is flirting with the dangerous levels at 0.3%. Moreover, the falling crude oil prices have made the risk of deflation a big concern among major countries, such as France and Germany. The credit situation in most of the euro zone countries is fragile while people getting employment is well below estimates. In addition to this, increasing private and public debt, coupled with limited wages, have made the economic situation in the euro zone fragile. The ECB lawmakers have loosened monetary policy and infused stimulus. However, it will take time to regain investor optimism towards business and service activities.

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