Eurozone Private Sector Downturn Slows

(RTTNews) - Eurozone private sector contracted for a sixth month in a row in December, while the pace of decline slowed for a second time, suggesting that the economic downturn will be less severe than expected previously.

The flash composite output index rose to a four-month high of 48.8 in December from 47.8 in the previous month, survey results from S&P Global showed Friday. The reading was also above economists' forecast of 48.0.

The index has climbed for the second straight month but the score remained below the neutral 50.0 to indicate a sixth successive fall in activity. The survey suggested that the fourth quarter has seen a worse performance than the third quarter, with the average Purchasing Managers' Index for the three months to December indicating the sharpest economic fall since 2013, if lockdown periods are excluded.

Although data signaled a strong possibility of recession, the survey hints that any downturn will be milder than thought likely a few months ago, Chris Williamson, chief business economist at S&P Global Market Intelligence said.

The data for the fourth quarter are consistent with GDP contracting just less than 0.2 percent, and forward-looking indicators are currently boding well for the rate of decline to ease further in the first quarter, said Williamson. Nonetheless, Capital Economics' economist Andrew Kenningham said with the European Central Bank committed to pressing on with "significant" more interest rate hikes, the outlook may well get worse again in the new year.

The manufacturing sector continued to lead the downturn in December but the manufacturing output index rose to a six-month high of 47.9. At 47.8, the factory PMI rose to a three-month high, while the score was forecast to remain unchanged at 47.1. The services PMI came in at 49.1, up from 48.5 in the previous month. The score was seen unchanged at 48.5.

Overall new orders dropped for a sixth straight month in December, though the rate of decline eased for a second time. The ongoing deterioration of order books led to another month of moderate job creation.

Input cost inflation, at composite level, was the slowest since May 2021. Reflecting weaker rates of increase in manufacturing and services, output price inflation moderated to the lowest for a year.

Business confidence remained subdued by historical standards in December. Confidence continued to be dogged in particular by worries over the impact of the rising cost of living, the energy crisis, the war in Ukraine and rising interest rates.

Within the euro area, the fall in output was broad-based but only France saw a deepening downturn.

France's private sector contracted for the second consecutive month, ending the year at the weakest pace in nearly two years, as output declined amid weaker demand and lower business confidence. The composite output index unexpectedly fell to 48.0 in December from 48.7 a month ago. The score was forecast to rise to 48.9.

At 48.1, the flash services Purchasing Managers' Index was down from 49.3 in November and also below economists' forecast of 49.1.

Although the manufacturing PMI improved to 48.9 from 48.3, the reading was below the neutral 50.0 mark signaling contraction. The expected score was 48.2.

Germany's private sector activity continued to remain in contraction in December, though the rate of decline eased as price pressures retreated from recent highs, S&P Global said.

The flash composite output index rose to a 6-month low of 48.9 in December from 46.3 in November. The index was forecast to rise slightly to 46.5.

At the sector level, manufacturing and services both reported slower downturns in December.

The services PMI climbed to a 5-month high of 49.0 from 46.1 in the prior month. The score was forecast to increase to 46.3.

Similarly, the manufacturing PMI rose to a 3-month high of 47.4 from 46.2 in November. The expected score was 46.3.