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Euro zone business activity shrank again in Dec, pointing to recession -PMI
Global Banking & Finance Review®
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By Indradip Ghosh
BENGALURU (Reuters) – The contraction in euro zone business activity continued at the end of 2023 due to a persistent downturn in the dominant services industry, a survey showed on Thursday, indicating the bloc’s economy was in recession.
HCOB’s Composite Purchasing Managers’ Index (PMI), compiled by S&P Global and seen as a good gauge of overall economic health, was revised up for December to match November’s 47.6 after a preliminary estimate of 47.0, but it remained below the 50 mark separating growth from contraction for a seventh month.
That indicated that the 20-country currency union, which shrank 0.1% in the third quarter of 2023, likely contracted again last quarter, meeting the technical definition of a recession.
The services PMI inched up to a five-month high of 48.8 from November’s 48.7.
“It’s not quite recession territory yet for services, but the vibe is far from growth-oriented. There are a lack of clear signals indicating an imminent return to robust expansion,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“The Composite PMI…is sounding the recession alarm for the euro zone though,” he added saying his economic modelling forecast a contraction in the fourth quarter.
Although the downturn in demand for services eased slightly last month with the new business index rising to a five-month high of 47.1 from 46.7, it remained below 50 for a sixth month.
That was similar to findings of a sister survey on Tuesday which showed euro zone factory activity contracted in December for an 18th straight month, ending 2023 on a weak note.
Despite signs of a continued slowdown in demand, composite output prices increased at their quickest pace since June, signalling inflation will remain above the European Central Bank’s target of 2% in the near term.
“In the face of a stagnant services sector, it’s impressive that service providers are successfully transferring a portion of their growing input costs to customers,” added de la Rubia.
“This will go against those members of the European Central Bank who are inclined to cut rates already in March. We expect a first rate cut in June.”
However, overall sentiment about the year ahead improved. The composite future output index rose to a seven-month high of 57.6 from 56.0.
(Reporting by Indradip Ghosh; Editing by Hugh Lawson)
The Purchasing Managers' Index (PMI) is an economic indicator that reflects the prevailing direction of economic trends in manufacturing and service sectors. A PMI above 50 indicates expansion, while below 50 indicates contraction.
A recession is a significant decline in economic activity across the economy lasting longer than a few months. It is typically recognized by a fall in GDP, income, employment, manufacturing, and retail sales.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation, and avoid deflation, to keep the economy running smoothly.
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