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Eurozone Business Growth Stall, Economy Never Rebounds

Unseen economic growth in the Eurozone and the inclusion of risks of a global downturn are infecting the Eurozone economy. The statement was delivered by the ECB President, Mario Draghi, at an economic forum in Brussels. He also clarified the matter of launching a new stimulus scheme earlier this month.

Draghi said that based on the latest data, business growth in the Eurozone this month has stalled. What's more, activity in Germany as the bloc's mainstay economy is also experiencing shrinkage. Most recently, the signal for the German manufacturing recession has reportedly deteriorated to a record low in the last decade.

"The latest data and projections on various indicators, such as new export orders in manufacturing, do not show a convincing growth signal in the near future. In addition, the balance of risk outlook for growth is still tilted towards a decline," Draghi said before the European Parliament committee.

For information, two weeks ago the ECB has cut interest rates to the lowest level. The European central bank is also not reluctant to open the door to cut interest rates again if indeed a low rate can stimulate public spending, economic growth, and inflation.

 

Signs of the German Recession Toppling the Euro

Draghi said that the service sector, which is the backbone of the domestic economy, is still in prime shape at the moment. However, it does not guarantee that the sector will forever be immune to a series of problems in the export sector. Thus, the ECB can be said to have gone all out for monetary policy to combat weak growth. 

Therefore, the central bank president who will step down next month again called for fiscal policy to take a large role in supporting central bank policy. Draghi's speech clearly shows dovish sentiment. Thus, the Euro has weakened against the U.S. Dollar since yesterday afternoon, did not have the drive to go up. 

The euro is paralyzed versus the U.S. Dollar and the Japanese Yen, due to the publication of data on the Purchasing Managers Index (PMI) for Germany's manufacturing sector which is extremely bad. The euro dropped around 0.5 percent to the lowest range of 1.0966 against the U.S. Dollar. 

The Euro is also paralyzed versus the Japanese Yen, although it is still quite tough against the British Pound. The reason, the publication of the latest data shows a drastic decline in the German manufacturing sector has expanded to the service sector and dragged economic growth in other regions.

German PMI Scores Reach the Lowest in Almost a Decade

Research institute Markit Economics reports that the preliminary score of the Purchasing Managers' Index (PMI) for the manufacturing sector of the Euro area fell from 47.0 to 45.6 in September, whereas it was previously expected to recover to 47.3. Deterioration mainly occurred in Germany. 

A slowdown in manufacturing business also dragged service companies across the Eurozone, so the PMI score for the service sector slipped from 53.5 to 52.0. The performance was worse than the estimate pegged at 53.3. On a composite basis, the Eurozone PMI score rolled from 51.9 to 50.4.

Manufacturing PMI data is often regarded as one barometer of economic growth, so this report worsens market opinion regarding the policy outlook of the European central bank (ECB) and the Euro exchange rate. The ECB is expected to be forced to make more monetary easing in December, both in the form of interest rate cuts and expansion of the asset purchase program.

"In the current situation, the ongoing appreciation of the Euro is almost impossible. Without the seriousness of the German government to support the economy adequately, this currency tends to be somewhat lethargic," said Marc-André Fongern, Forex and Macro Strategy Expert at MAF Global Forex.

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