Eurozone economic downturn continues as employment falls for first time in three years
Business activity in the euro area continued to fall during November, according to provisional survey data, amid a further solid decline in new orders. Both output and new business have now decreased in each of the past six months.
That said, in each case the rate of contraction was softer than in the previous survey period. Spare capacity as a result of waning demand and relatively muted confidence in the outlook led companies to lower their staffing levels for the first time since the start of 2021, while purchasing activity and inventories were also scaled back.
The rate of input cost inflation hit a six-month high midway through the final quarter of the year, with the pace of increase in selling prices also quickening despite ongoing reductions in new orders. Inflation was mainly centred on the service sector as prices in manufacturing continued to decline.
Output and demand
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses, posted 47.1 in November to signal a sixth consecutive monthly reduction in business activity across the euro area’s private sector.
Although solid, the rate of contraction eased from that seen in October, when the headline index had been at a near three-year low of 46.5.
While both the manufacturing and service sectors saw business activity decrease, the rate of contraction was again more pronounced in the former.
Manufacturing production was down for the eighth month running, and at a rapid pace, albeit one that was the least marked since May. Meanwhile, services activity decreased for the fourth successive month, but at a modest and softer pace.
The overall reduction in business activity was again mainly a symptom of falling new orders. As has been the case in each month since June, companies in the eurozone reported a decline in new business.
The latest reduction was marked, but the softest in four months amid weaker falls in both manufacturing and services. New export orders, including intra-euro area trade, continued to decrease rapidly.
With new orders down, companies again depleted their outstanding business midway through the final quarter. Backlogs of work decreased for the eighth month running, and at a marked pace that was only slightly weaker than that recorded in the previous survey period.
November saw business confidence in the euro area remain unchanged from the previous month, with firms moderately optimistic regarding the outlook for activity over the coming year. Sentiment was weaker than the series average, however.
A slight improvement in confidence at manufacturers was balanced out by a marginally less optimistic outlook in the service sector.
Continuing the recent trend, the overall downturn in the eurozone was driven in large part by the two largest economies – Germany and France.
France posted the sharpest reduction in November as output fell markedly on the back of the steepest decline in new orders in three years.
Rates of contraction in output and new orders in Germany eased, but they remained solid overall. Business activity has now decreased in each of the past five months. While output also decreased in the rest of the euro area in November, the rate of decline was only modest.
Moreover, the rest of the eurozone continued to record job creation, contrasting with the picture in France and Germany.