Eurozone downturn eases and inflation pressures fall as supply improves
The eurozone downturn extended into its sixth successive month in December, according to flash PMI data, though the rate of decline of business activity moderated for a second month running amid a reduced rate of loss of orders, improving supply conditions, lower price pressures and an uplift in business confidence.
Firms’ costs notably rose at the slowest rate for over oneand-a-half years, reflecting the combination of weakened demand and improved supply, the latter signalled by the first quickening of supplier delivery times since the pandemic began.
However, the overall level of business sentiment remains subdued by historical standards, reflecting the challenging environment caused by the high cost of living, rising interest rates, concerns over energy supply and the Ukraine war.
Companies reported only a modest increase in payroll numbers again as a result, underscoring the cautious mood that prevails.
Thus, the seasonally adjusted Eurozone PMI Composite Output Index rose for a second successive month in December, increasing from 47.8 in November to a four-month high of 48.8, according to the preliminary ‘flash’ reading based on approximately 85% of usual survey responses.
The subdued level of the PMI nevertheless means that the fourth quarter as a whole has seen a worse performance than the third quarter, with the average PMI for the three months to December indicative of the sharpest economic contraction since 2013 if pandemic lockdown months are excluded.
While manufacturing continued to lead the downturn, with factory output dropping for a seventh straight month, the rate of production decline eased to indicate a further marked cooling in the pace of contraction compared to October’s steep fall.
The manufacturing output index rose to 47.9, a six-month high, against 46.0 in November. Service sector output meanwhile fell, down for a fifth successive month, but likewise saw a moderation in the rate of decline.
The sector’s activity index rose from 48.5 to a four-month high of 49.1, indicative of only a modest monthly deterioration of output.
Within the euro area, the fall in output was broad-based but only France saw a deepening downturn. The flash French composite PMI slipped from 48.7 to 48.0 to signal a second consecutive monthly drop in output and the largest decline since November 2014 if the pandemic is excluded.
A softening of the manufacturing downturn was offset by the steepest fall in service sector activity for 22 months.
Germany meanwhile saw rates of decline moderate across both manufacturing and services, pushing the composite flash PMI up for a second month in a row from
46.3 in November to 48.9.
The December reading thereby registered the smallest drop in activity recorded over the past six months. Output fell in the rest of the eurozone for a fourth successive month, though the pace of decline slowed for a second month running to point to the smallest deterioration
seen so far.
While services activity remained largely stalled, the biggest change was seen in manufacturing, where the latest drop in output was the smallest for four months.