February was worst month for euro zone businesses in over a year - PMI

By Jonathan Cable

LONDON (Reuters) - Euro zone businesses had their worst month in over a year in February which, coupled with further signs of deflationary pressures, is likely to solidify expectations for further monetary policy easing, a survey found.

Markit's final Composite Purchasing Managers' Index, published on Thursday and seen as a good guide to growth, fell to 53.0 last month from January's 53.6, its lowest reading since the start of 2015. That was ahead of the preliminary reading of 52.7, however, and comfortably over the 50 mark that denotes growth.

"The slowdown in growth of business activity, accompanied by a similar easing in the pace of job creation and the steepest fall in prices charged for a year, suggest that the region's recovery is losing momentum," said Chris Williamson, chief economist at Markit.

"The broad-based disappointment ups the odds of the European Central Bank acting aggressively to avoid another downturn."

An additional cut to the ECB's deposit rate is almost certain when it next meets on March 10 and a recent Reuters poll gave an even chance the central bank would increase the size of its bond-buying programme from 60 billion euro a month.

Prices fell 0.2 percent across the bloc last month, nowhere near the ECB's inflation target of just below 2 percent, and Markit's survey showed firms discounted goods and services at the steepest rate for a year. The output price index fell to 48.5 from 48.9.

Yet that discounting failed to stop the growth rate declining in the bloc's dominant service industry. Its PMI fell to a 13-month low of 53.3 from January's 53.6 although it was ahead of the 53.0 flash estimate.

"The survey data raise the prospect of economic growth deteriorating further from the already meagre pace seen late last year, when GDP rose only 0.3 percent," Williamson said.

Last month's Reuters poll put growth at 0.4 percent this quarter.

With the outlook both within and outside the bloc deteriorating, services firms were less optimistic about the year ahead than they were in January. The business expectations index fell to 63.1 from the previous 65.1, which was the highest since May 2011.

(Editing by Catherine Evans)