Another dose of disappointing economic data has underlined the case for European Central Bank (ECB) chief Mario Draghi to deliver an aggressive boost next week to its campaign to revive the euro zone economy.

Manufacturing activity in the single currency area expanded at its weakest pace for a year in February, according to new figures, as deep price discounting failed to arrest a slowdown in order growth. Meanwhile, weakness in Irish data is leading analysts to conclude that volatile international conditions are starting to affect the domestic scene.

The manufacturing figures came one day after price data showed the euro zone slipped backed into deflation in February, all but ensuring action by the ECB governing council at its March 10th policy meeting.

The bank disappointed markets in December with its last intervention, spurring pressure for more radical action.

The market is speculating about whether it will move a key interest rate for holding banks’ cash further into negative territory. Also in question is whether the ECB will add to its €60-billion-a-month sovereign bond purchase programme or roll out a long-term financing scheme for banks. The anticipation of action has driven sovereign bond yields down, with German bonds dipping to a 10-month low of 0.1 per cent on Monday before reaching 0.15 per cent on Tuesday.

Anticipation

“Given the latest inflation reading and Mario Draghi’s assertion that the ECB will not surrender to low inflation, we expect anticipation to grow for a major policy announcement at the March meeting,” said Garret Grogan, head of long-term interest rate trading at Bank of Ireland.

“Current market expectations are for a further cut to the overnight deposit rate in combination with possible changes to the public sector purchase programme, or a new long-term refinancing operations offering.”

A key euro zone manufacturing purchasing managers’ index slipped to 51.2 in February, signalling slower growth than in January. A reading below 50 signals contraction.

The equivalent index for Ireland, compiled by Investec, showed the headline rate dipped to 52.9 per cent in February from 54.3 per cent in January. The “report suggests that the global headwinds may be starting to weigh on the manufacturing sector here,” said Investec chief economist Philip O’Sullivan.