Developed Europe ended the fourth quarter and the year 2014 on a surprisingly encouraging note as the Euro-zone reported a series of positive data for December. For instance, data provider Markit’s Composite Purchasing Managers’ Index (PMI), which measures activity in both the manufacturing sector and the services sector, improved slightly between November and December, easing fears that the Euro-zone economy would remain stagnant for an extended period of time. Alongside this data, improved readings for new industrial orders and employment signaled that the oil price slump and a weaker euro were likely reviving business confidence in the region. Indeed, this appears to be the case as the composite PMI rose in January too, beating expectations and touching its highest level in five months.
In sharp contrast to these upbeat trends, deflationary conditions have seemingly worsened in the region. The European Union statistics office Eurostat has estimated that the annual rate of inflation in the 19-country Euro-zone plunged to -0.6 percent in January after falling to -0.2 percent in December. A negative rate of annual inflation implies an actual fall in prices over a period of one year. Notably, this is the first time since 2009 the Euro-zone has recorded a negative rate of inflation.
Fortunately, though, the European Central Bank (ECB) has finally decided to launch its much awaited government bond purchase program, which is expected to provide a significant stimulus to the Euro-zone economy. Beginning in March, the ECB will buy euro-denominated investment-grade securities worth €60 billion every month for an indefinite period in order to push up inflation and encourage businesses to increase investment and hiring.
How soon this stimulus jumpstarts the Euro-zone economy remains to be seen. But a key risk for the single currency bloc now is its standoff with Greece’s new government. Having come to power with the promise of renegotiating agreements with its lenders and getting a portion of Greece’s debt written off, the new government is refusing to renew its bailout package. However, the Euro-zone’s largest economy Germany and the ECB have rejected leeway for Greece. If the standoff continues, Greece faces an acute financial crisis, which in turn may create fresh problems for the Euro-zone economy.
In Germany the economy grew a modest 0.25 percent during the fourth quarter. In 2014, the country’s GDP expanded 1.5 percent, in line with analysts’ expectations and significantly more than the 0.1 percent growth seen in 2013.
The British economy expanded 2.6 percent in 2014, clocking its quickest pace of growth since 2007. GDP growth slowed down to 0.5 percent during the fourth quarter compared with the third-quarter rate of 0.7 percent.
In France the central bank said GDP likely inched up 0.1 percent during the fourth quarter. Private sector activity declined in all three months of the fourth quarter. The number of French people seeking jobs reached a new high in December.
According to the central bank, Italy likely remained in recession during the fourth quarter and shrunk around 0.4 percent last year. Manufacturing activity fell all through the quarter, while services sector activity suddenly dipped in December after two months of growth.
According to the Bank of Spain, the economy expanded 1.4 percent in 2014, and 0.6 percent between the third and the fourth quarter. A Financial Times report said the 2014 Christmas season turned out to be the best for Spanish retailers since the beginning of the crisis and car sales jumped 18 percent last year.