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Euro-Area Economy Menaced by Threat of Relapse as ECB Weighs Action

A gauge of euro-area services and manufacturing signaled economic growth slowed in the final quarter of 2014, supporting calls for more stimulus by the European Central Bank.

A Purchasing Managers’ Index for both industries rose to 51.4 from 51.1 in November, London-based Markit Economics said today. While that’s above the 50 mark that divides expansion from contraction, the reading falls short of a preliminary reading of 51.7 published on Dec. 16. The data suggest the euro-area economy expanded 0.1 percent in the fourth quarter, Markit said.

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“The euro zone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015,” said Chris Williamson, chief economist at Markit. “The weakness of the PMI in December will add to calls for more aggressive central-bank stimulus.”

The ECB is working on a discussion paper on different forms of quantitative easing, and may offer governors three different options to choose from at a Jan. 22 meeting, Dutch newspaper Het Financieele Dagblad reported today. President Mario Draghi has signaled support for large-scale government-bond purchases, while policy makers including Bundesbank President Jens Weidmann favor not acting at this time.

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Lackluster Growth

While a measure of German manufacturing and services activity unexpectedly rose for the first time in three months, the rate of expansion remained “lackluster” compared with momentum recorded earlier last year, Markit said.

Output in France fell for an eighth month in December as a slight recovery in services failed to offset a deepening downturn at the country’s factories. A gauge for Italy showed a return to contraction.

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The euro was little changed after the report and traded at $ 1.1940 at 10:12 a.m. Frankfurt time.

A first estimate of euro-area gross domestic product in the fourth quarter will be published on Feb. 13. Economists in Bloomberg’s monthly survey predicted in December that the economy expanded 0.2 percent in the final three months of the year, matching the growth rate of the previous period.

Inflation (ECCPEST) probably turned negative at the end of 2014, aggravating concern at the ECB that a slump in oil prices will help trigger a deflationary spiral. That data is due from Eurostat tomorrow.

“Despite showing slightly improved euro-zone economic activity in December and a marginally reduced drop in prices charged, the December purchasing managers surveys do little to ease pressure on the ECB to take further stimulative action,” said Howard Archer, chief European economist at IHS Global Insight in London. “The odds now strongly favor the ECB engaging in QE in the first quarter of 2015.”

To contact the reporter on this story: Stefan Riecher in Frankfurt at [email protected]

To contact the editors responsible for this story: Fergal O’Brien at [email protected]; Jana Randow at [email protected]; Paul Gordon at [email protected] Jana Randow, Paul Gordon

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