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Euro area economy slows in October: Markit

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Euro area economy slows in October: Markit

Economic activity in the euro area fell from its 27-month high, as the manufacturing and service economies slowed over the previous month, according to Markit Group.

October’s PMI Composite fell 0.7 points to 51.5, led by a slight downturn in the service economy. Service activity slowed to a two-month low, Markit reported. The service economy experienced a slowdown in both output and new orders, although new business activity rose for a third consecutive month. On the manufacturing side, output growth accelerated at a modest pace, whereas new orders were relatively unchanged from the previous month’s moderate rate of growth.

Despite the slowdown, the service and manufacturing PMIs remained north of 50.0, signalling an overall expansion in economic activity. The expansion occurred across the 17-nation currency bloc, although growth slowed in Germany and France, the euro area’s largest economies. The rest of the currency bloc reported modest growth for the third consecutive month.

Market participants are speculating whether the slowdown of expansion has deeper implications on the currency bloc’s overall recovery. According to Chris Williamson of Markit, “It’s still too early to say that the recovery is losing momentum.” Williamson cautioned market participants not to read too much into the October data. The modest expansion in the third quarter is reassuring, as all regions of the 17-nation bloc are gradually improving.

Overall, the euro area economy has been expanding into positive territory for four months. The slight downturn in October will however remind policymakers recovery should not be taken for granted. In some way, the drag on PMI confirms the European Central Bank’s concern that economic growth will be uneven in the foreseeable future.

The ECB recently launched plans to formally examine 128 of Europe’s top lenders in order to strengthen confidence in the region’s financial sector. The ECB is looking to establish a common resolution mechanism for dealing with troubled banks, indicating it will not hesitate to fail banks if necessary.

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