Euro zone likely in recession, PMI surveys show
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[December 15, 2023] By
Jonathan Cable
LONDON (Reuters) -The downturn in euro zone business activity
surprisingly deepened in December, according to closely watched surveys
which indicated the bloc's economy is almost certainly in recession.
It was a broad-based decline with activity deteriorating in both Germany
and France and across services and manufacturing, the surveys showed.
Last quarter, the euro zone economy contracted 0.1%, official data has
shown, and December's Purchasing Managers' Index (PMI) - seen as a good
gauge of economic health - suggested activity has now declined in every
month of this quarter. That would mark two consecutive quarters of
economic contraction, meeting the technical definition of recession.
The European Central Bank trimmed its growth forecasts for 2023 and 2024
on Thursday.
HCOB's preliminary Composite PMI, compiled by S&P Global, fell to 47.0
this month from November's 47.6, confounding expectations in a Reuters
poll for an uptick to 48.0 and marking its seventh month below the 50
level separating growth from contraction.
"The drop-back in the euro zone Composite PMI in December provides more
evidence that the economy is in recession," said Andrew Kenningham at
Capital Economics.
In Germany the downturn worsened, pointing to a recession in Europe's
biggest economy at the end of the year. Meanwhile activity declined
faster than expected in France as demand for goods and services in the
euro zone's second-biggest economy deteriorated further.
Germany's economy is set to shrink slightly this year and barely grow
next as demand from abroad is weak, government subsidies for the green
transition are curbed and high interest rates dampen activity, the
Bundesbank said earlier on Friday.
Companies in Britain's huge services sector however saw another pick-up
in growth this month, suggesting the economy has just enough momentum to
avoid a recession for now at least.
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A businessman walks on the esplanade of La Defense, in the financial
and business district in La Defense, west of Paris, April 10, 2014.
REUTERS/Gonzalo Fuentes/File Photo
WAITING GAME
Indicating firms in the euro zone do not see a big improvement
anytime soon they reduced staffing for a second month. The composite
employment index was at a three-year low of 49.6, just shy of
November's 49.7.
A PMI for the bloc's dominant services industry fell to 48.1 from
48.7, far short of the Reuters poll prediction of a rise to 49.0.
"This confirms our expectation that the euro area economy will
continue to contract in Q4, contrary to the ECB's expectations,"
said Christoph Weil at Commerzbank.
Demand for services fell again as indebted consumers feeling the
pinch from record-high borrowing costs in the 20-country currency
union spent less. The new business index dipped to 46.6 from 46.7.
On Thursday, the ECB left interest rates on hold and pushed back
against bets on imminent cuts by reaffirming borrowing costs would
remain at record highs. A recent Reuters poll showed it would wait
until the second quarter before it starts cutting.
The ECB's next move should be lowering interest rates, French
central bank chief Francois Villeroy de Galhau said on Friday but
implied a rate cut was not imminent.
Factories in the currency union also had another disappointing
month. The manufacturing PMI held steady at November's 44.2 -
missing the Reuters poll forecast for 44.6 and chalking up its 18th
month sub-50.
An index measuring output fell to 44.1 from 44.6.
Factory managers were more optimistic, though, about the year ahead
and the future output index jumped to 55.6 from 53.3, its highest
since May.
(Reporting by Jonathan Cable; Editing by Susan Fenton and Tomasz
Janowski)
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