Euro area's modest recovery sets scene for Draghi stimulus

Factory growth in the euro area accelerated amid a continued decline in unemployment, extending a tepid recovery that may require more stimulus from the European Central Bank.

Markit Economics said in a report on Tuesday that its Purchasing Managers Index for the region rose to 52.8 in November from 52.3. Joblessness unexpectedly fell to 10.7 per cent in October, data from the European Union's statistics office said showed. While the euro-region economy is slowly improving, both growth and inflation are subdued, and ECB President Mario Draghi has signaled policy makers will respond with action this week. Their concern is that an expected pickup in prices in the coming months may only be temporary, eroding confidence in the ECB's ability to meet its mandate and nurture a recovery. "It's by no means a spectacular pace of expansion," said Chris Williamson, chief economist at Markit in London. "The scene is set for the ECB to unleash further stimulus at its December meeting to ensure momentum continues to build."On the table are a range of options that include a deposit- rate cut, changes to the size or duration of the asset-purchase program, or new measures.

The region's labour market may well be the best indicator for the feeble state of the recovery. Joblessness is only slowly retreating from a record 12.1 per cent reached in 2013. Youth unemployment rose to 22.3 per cent in October from 22.2 per cent the previous month, according to Eurostat's report.

Joblessness in Italy fell more than economists estimated to the lowest since December 2012. The rate was at 11.5 per cent in October.

Under a national measure, German unemployment fell by 13,000 in November, exceeding a prediction for a 5,000 drop and sending the rate down to a record-low 6.3 per cent.

Markit said manufacturing in all euro-area countries surveyed expanded in November apart from Greece. Price pressures in the region remained "on the downside" last month, with output charges and input costs falling.

In Germany, Europe's largest economy, the manufacturing index rose to 52.9 in November from 52.1, higher than an initial estimate published on Nov. 23. Measures in Italy and Spain also rose, while France's PMI was unchanged from October. In Greece, the index remained below 50, though it advanced to 48.1 from 47.3.

Manufacturing in Greece "appears to be edging toward stability," according to Samuel Agass, an economist at Markit. "However, incoming new orders and buying activity are declining sharply, indicating consumption is being constrained by the capital controls imposed on the economy," he said.