Europe Economy

Euro zone business activity posts weak growth

The assembly line at a factory of the French Fermob furniture company
Jess Pachoud | AFP | Getty Images

Business activity in the euro zone grew more than expected in December, according to a key economic survey, although the rate of expansion remained weak.

Euro zone December flash composite purchasing manager's index (PMI) data from Markit - a closely-watched indicator of economic growth - came in at 51.7, just above analyst forecasts of 51.5 and November's final reading of 51.1. A reading above 50 indicates that the sector has grown.

This was not enough to counter worries about economic stagnation in the currency region, however.

Jonathan Loynes, chief European economist at Capital Economics, said the data, "remain consistent with very weak or even negative GDP (gross domestic product) growth, underlining the fact that the euro-zone's economic problems go well beyond the renewed troubles in Greece."

If economic growth proves to be as weak as suggested by PMI figures, it may raise the pressure on the European Central Bank to launch a full-blown quantitative easing program - which would effectively pump cheap loans into the financial system.

This is a measure which would be frowned upon by many in Germany, the euro zone's largest economy.

Confidence returning 'slowly'

On a country-specific level, Germany's private sector growth slumped to its slowest rate for 18 months in December, while neighboring France's slowdown showed signs of turning around.

France's composite PMI reading came in better than forecast, rising to 49.1 in December, from 47.9 last month.

However, in Germany, more upbeat manufacturing figures were countered by declining growth in the services sector, according to Markit. Its composite PMI fell to 51.4 in December from 51.7 in November.

The data contrasted with the results of the ZEW Institute's economic sentiment index for Germany in December. The index shot up to 34.9 points, from 11.5 in November and above analyst expectations of 20.

ZEW President Clemens Fuest said the data showed that confidence in the German economy seems to be returning "slowly."