- Ahead of 49.5
- Manufacturing PMI 45.2 vs 45.3 expected
- Prior to 45.2
- Composite PMI 49.5 vs 48.2 expected
- Prior to 48.3
It's a different picture again for the overall Eurozone economy, as the services sector is seen expanding again while manufacturing continues to contract. On the latter, the headline reading is unchanged until November but the output index is seen down to its softest level in a year. Overall, the euro area economy contracted somewhat and that is not due to the sluggish outlook in France and Germany. France has to deal with weak demand conditions that are now starting to hit employment, which has seen its biggest decline in four years. As for Germany, it is a case of deepening stability concerns. HCOB notes:
“The end of the year is a bit more settled than generally expected. Service sector activity returned to growth territory and is showing a noticeable, if not exciting, pace of expansion similar to September and October. While manufacturing is still deep in recession, the rebound in services output is a positive boost for the overall economy.
“At their meeting on December 12, the ECB said that they are closely monitoring inflation in the service sector, which is still well above general inflation. PMI price indicators are not reassuring here – input costs rose at a faster pace for the third month in a row, while retail prices followed suit. Higher wage agreements are partly to blame, as businesses pass these costs on to customers. Against this background, the ECB played it safe by only cutting interest rates by 25 basis points.
“The situation in the manufacturing sector remains dire. Output fell at a faster pace in December than at any other time this year, and incoming orders were also down. The destocking cycle in investments shows no sign of stopping either. Meanwhile, global manufacturing PMI data indicated stability in operating conditions in November, offering a glimmer of hope that the downward trend may not continue unabated in the euro area.
“Germany and France, the two largest economies in the euro area, are in politically uncertain waters at the moment. This prevents the necessary reforms from being implemented in the short term to stimulate growth again and contributes to the ongoing weakness in both countries. However, this position also involves upside risks. If future governments manage to chart a clear course, there could still be a nice surprise next year. Eurozone companies were slightly more confident than they were in November that business activity will be higher from now on than it is today.”
