Euro zone economy hits 'speed bump' in February on rising prices: PMI

The euro zone's economic boom paused last month as rising prices took a toll on demand, but the zone remains on course for its best growth in eight years, a survey showed on Monday.

Growth was robust and broad, with countries across the region reporting expansion, welcome news to the European Central Bank as it looks to end its ultra-easy monetary policy.

HIS Markit's Final Composite Purchasing Managers' Index, seen as a good overall indicator of growth for the euro zone, fell to 57.1 in February from January's 58.8 and down from the flash estimate of 57.5.

January's reading was a level not seen since June 2006. But the slight slip last month leaves the PMI well above the 50 mark that separates growth from contraction.

"The euro zone economy looks to have hit a speed bump in February after a stellar start to the year. It's too early to read too much into the February fall in the PMI, and some pull-back from January's high was always on the cards," said Chris Williamson, chief business economist at HIS Markit.

Euro zone finance ministers to discuss banking union, common budget

Euro zone finance ministers will discuss next week completion of the banking union, ideas for setting up a common budget and ways to simplify the bloc's fiscal rules, in preparation for a December summit on reforming the currency area.

No conclusions are likely to be reached at the Eurogroup meeting on Monday, however, as there are widely differing views among the 19 countries that share the euro on most aspects of reform.

"It will be more laying out the table before cooking starts," one senior euro zone official said.

The December 15 euro zone summit will start six months of deliberations on deeper integration, with a further summit in June 2018 taking decisions on how the single currency area will look in future.

Among the possible changes are ideas for a special pool of money for euro zone countries that would be managed by a finance minister for the whole of the euro zone and who would answer to a euro zone caucus in the European Parliament.

Other proposals include turning the euro zone bailout fund into a European Monetary Fund and creating a sovereign insolvency mechanism that would put market pressure on governments to conduct prudent fiscal policies.

Some euro zone officials believe the involvement of markets is necessary because EU fiscal rules — the Stability and Growth Pact — have become so complex and prone to political interpretation that they are no longer effective.

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ECB should maintain stimulus, calls for end are 'premature', says IMF

The European Central Bank (ECB) should maintain a "firmly accommodative" monetary policy for an "extended period", the International Monetary Fund (IMF) said on Tuesday, as it forecast inflation remaining below target.

As the ECB prepares for a decision in autumn on whether to claw back its stimulus programme, the IMF said calls for an exit from easy-money policy were "premature" because consumer prices were not increasing enough.

In its annual report on the euro zone, the IMF estimated euro zone inflation will reach 1.6 percent this year before slowing to 1.5 percent in 2018, below the ECB target of below but close to 2 percent.

The forecasts were actually stronger than the ECB's latest one, released in June, which predicted the bloc's inflation rate at 1.5 percent this year and 1.3 percent in 2018.

"The costs of a long period of inflation undershooting continue to exceed those of a temporary overshoot," the IMF said.

"The calls from some quarters for an exit from monetary accommodation are therefore premature," it added. Germany has been the biggest critic of ECB's 2.3 trillion euro ($2.7 trillion) money-printing programme.

To help a sustained recovery of inflation, the IMF encouraged Germany and other euro zone's countries with high growth to push for "robust" wage and price rises, even if this could bring domestic inflation beyond the 2 percent limit for a limited period.
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