A measure of Eurozone economic activity declined in February to its lowest level in just over a year, increasing the odds of more stimulus from the European Central Bank in March.
Markit’s Eurozone composite purchasing managers index (PMI) fell from 53.6 in January to 52.7, the lowest since January 2015. Economists surveyed by The Wall Street Journal last week had expected a decline to 53.3. A reading above 50.0 indicates an increase in activity, while a reading below that level indicates a decline.
“The need to compete on price has become increasingly widespread amid weak demand, leading to an escalation of deflationary pressures that will worry policy makers,” Markit’s chief economist Chris Williamson wrote in a blog post on the London firm’s website.
“The data will fuel expectations that the ECB will unleash further quantitative easing and deeper negative interest rates at its March meeting,” he added.
The ECB has acknowledged that inflation in 2016 is likely to fall far short of its December forecast for a rise in consumer prices of 1%, according to the WSJ.
“In the wake of falling oil prices, some economists now estimate the broad measure of inflation targeted by the central bank may have already started falling in February, and is likely to record only a slight increase over the course of the year,” the WSJ wrote.
ECB Vice President Vitor Constâncio said Friday that while no decisions have been made, a lack of confidence in getting inflationary pressures higher could cause the central bank to deliver more stimulus next month.
According to Williamson, growth in France was “flat-lining” and German growth was being held back as weak global demand hits its manufacturers. Elsewhere across the region, growth slowed to the weakest since the start of last year.
Stock markets in Europe closed with strong gains Monday, reflecting in part hopes for more central bank stimulus. Germany’s DAX rose 2% to close at 9,573.59 while France’s CAC 40 gained 1.8% to 4,298.70. Britain’s FTSE 100 ended 1.5% higher at 6,037.73.