- Prior 49.5
- Manufacturing PMI 45.2 vs 45.3 expected
- Prior 45.2
- Composite PMI 49.5 vs 48.2 expected
- Prior 48.3
It's a contrasting picture again for the overall Eurozone economy, as the services sector is seen expanding once more while manufacturing continues to contract. On the latter, the main reading is unchanged to November but the output index is seen down to its softest in a year. As a whole, the euro area economy marginally contracted and that is no thanks to the sluggish showing in both France and Germany. France is having to deal weak demand conditions that is now starting to hit at employment, which saw the sharpest decline in four years. As for Germany, it's a case of stagflation concerns deepening. HCOB notes that:
“The end of the year is somewhat more conciliatory than was generally expected. Service sector activity returned to growth territory and is showing a noticeable, if not exuberant, pace of expansion, similar to that seen in September and October. While manufacturing is still deep in recession, the rebound in services output is a welcome boost for the overall economy.
“At their December 12 meeting, the ECB mentioned they are closely watching service sector inflation, which remains well above general inflation. The PMI price indicators are not giving any reassurance here – input costs rose at a faster pace for the third month in a row, and selling prices followed suit. Higher wage agreements are partly to blame, as businesses pass these costs on to customers. Given this backdrop, the ECB played it safe by only cutting interest rates by 25 basis points.
“The manufacturing sector’s situation is still pretty dire. Output fell at a quicker pace in December than at any other time this year, and incoming orders were down too. The destocking cycle in inventories shows no sign of stopping either. Meanwhile, global manufacturing PMI data signalled a stabilisation in operating conditions in November, offering a glimmer of hope that the downward trend might not continue unabated in the eurozone.
“Germany and France, the eurozone’s two biggest economies, are currently in politically uncertain waters. This is preventing the necessary reforms from being implemented in the short term to boost growth again and is contributing to the ongoing weakness in both countries. However, this situation also entails upside risks. If future governments manage to chart a clear course, there could still be positive surprises next year. Eurozone companies were actually slightly more confident than in November that business activity will be higher a year from now than it is today.”
This article was written by Justin Low at
www.forexlive.com.
