December marked the seventh month of contraction in services and manufacturing in the euro area, with the rate of decline accelerating since November.
advertisementManufacturing and service industries in the euro area continue to contract due to falling demand and rising costs.
Hamburg Commercial Bank (HCOB) and index provider S&P Global on Friday released a new set of data measuring the health of the eurozone economy.
The four main PMI (Purchasing Managers Index) figures look at a variety of metrics across manufacturing and services sectors, including new orders, output, employment, supplier delivery times, and inventories.
The composite PMI production index, which is a weighted average of production between the two sectors, stood at 47 in early December, down from 47.6 in November and 46.5 in October.
The index has now been below 50, the benchmark for economic contraction, for seven months.
The Eurozone PMI survey is based on survey responses from companies based in Germany, France, Italy, Spain, the Netherlands, Austria, Ireland and Greece, but the latest figures are so-called “preliminary” figures. It would be useful to be careful.
This means it is based on 85% to 90% of all PMI responses collected each month and is used as an advanced forecast.
HCOB's Chief Economist, Dr. Cyrus de la Rubia, said: “These figures paint another disappointing picture, with the eurozone economy showing no clear signs of recovery. ” he said.
“On the contrary, it has contracted for six months in a row. It remains very likely that the eurozone will fall into recession from the third quarter onwards,” he added.
Short-term relief for manufacturing
The composite index takes into account manufacturing output and service sector activity.
Looking only at manufacturing production, the index was 44.1.
The figure for December was down from 44.6 in November and up from 43.1 in October, indicating that November's easing in the contraction rate was a fleeting glimmer of hope.
Looking only at the Services PMI Activity Index, this number was 48.1 in December, down from 48.7 in November.
This was the third fastest rate of decline since the coronavirus lockdown in early 2021.
Decrease in demand
Across the two sectors studied, new orders declined for the seventh straight month in December, but the rate of decline remained unchanged from November.
In the services sector, demand has now fallen for six consecutive months, with the decline in new orders at the highest level in three years.
New manufacturing orders have fallen for the 20th straight month, but the decline has been less dramatic in the past two months.
Employment statistics are sluggish
To cope with weak demand, companies are tightening their purse strings and cutting staff.
advertisementManufacturing has cut jobs for the seventh straight month, and the unemployment rate is the highest since 2012, excluding the pandemic months.
For service providers, staffing levels rose slightly in December, but hiring rates declined.
Rising input costs
Input costs continued to rise in December for both manufacturing and services, but the monthly rate of increase was nevertheless the smallest since August.
While manufacturing prices have now fallen for 10 consecutive months, prices in the services sector are rising at the slowest pace since July.
These numbers can be explained not only by a decline in inflation, but also by a decline in corporate purchasing activity.
advertisementIs there room for optimism?
Looking ahead to the year ahead, confidence levels vary widely between manufacturing and services, but remain below their long-term averages.
Business confidence among service companies is bleak compared to a year ago, while confidence in manufacturing is at its highest level since May.
Founder of France and Germany, Britain endures
At a national level, France suffered the most severe economic contraction, with business activity slowing at the sharpest pace since March 2013, excluding the pandemic year.
The situation in Germany was just as alarming, with the composite Purchasing Managers Index declining for the sixth straight month, to 46.7 in December, down from 47.8 in November.
Outside the euro area and in the UK, the situation is slightly more positive.
advertisementWhile manufacturing output has declined and factory job losses have increased, both the composite output index and the services PMI activity index are above the benchmark 50, indicating growth.
“We've had very mixed macroeconomic news from Europe this morning,” said Matthew Ryan, head of market strategy at global financial services firm Every.
“The euro area economy appears to be on track for a technical recession in the fourth quarter.” […] “Following a widespread downturn in activity in both Germany and France,” he explained.
“In contrast, the UK economy appears to be in much healthier shape and economic activity appears to be accelerating as we approach the end of the year,” Ryan said. “This will allay investor concerns about a possible UK recession and justify the Bank of England's 'long-term high' stance on interest rates.”
