Eurozone economy contracted again in december for six straight months

Autor: Tiberiu Porojan
2 min

Business activity in the euro area fell at a steeper rate in December, according to the latest Purchasing managers index (PMI) survey data, closing off a fourth quarter which has seen output fall at its fastest rate for 11 years barring only the early-2020 pandemic months.

Downturns were again recorded across both manufacturing and services, with both sectors reporting further steep falls in inflows of new business, which led to a further depletion of backlogs of work.

Jobs were cut for a second month running as firms scaled back operating capacity in line with the worsening order book situation and persistent gloomy prospects for the year ahead, with future sentiment remaining well below its long-run average despite lifting slightly higher. Factories also cut inventories of inputs at a rate not seen since 2009.

Thus, the seasonally adjusted Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, registered 47.0 in December, down from 47.6 in November to signal a seventh consecutive monthly reduction in business activity across the euro area.

The weak reading rounds off the sharpest average quarterly decline in activity recorded by the survey since the fourth quarter of 2012, if early pandemic lockdown months are excluded.

Manufacturing continued to lead the downturn (flat at 44.20), accompanied by a steepening drop in service sector output. Manufacturing output fell for a ninth month running, the rate of decline re-accelerating after the moderation seen in November, albeit remaining less severe than seen in the four months to October.

Services activity meanwhile fell for a fifth successive month (48.10 in dec vs 48.70 in nov), the pace of decline likewise gathering momentum again to register the third-steepest fall since the lockdowns of early 2021.

The overall reduction in business activity was again a reflection of deteriorating order books. Inflows of new orders fell for a seventh straight month, the rate of decline remaining unchanged on the steep pace seen in November (though somewhat less severe than witnessed in the three months to October).

New orders for goods fell for a twentieth straight month, the rate of decline still sharp by historical standards despite easing for a second month in a row, while the rate of loss of new orders in the service sector remained among the highest seen over the past three years to register a sixth successive monthly fall.

Looking ahead, firms grew more optimistic regarding the year-ahead outlook for output in December, with sentiment at its brightest since August.

The improvement was limited to manufacturing, however, where confidence reached its highest since May, while service sector firms remained at their gloomiest for a year.

Despite the uplift in manufacturing, the overall level of confidence notably continues to be well below long-run averages in both sectors.

At a national level, the downturn was led by France, where businesses reported the sharpest reduction in activity since March 2013 (excluding the pandemic) thanks to rates of contraction accelerating in both manufacturing and services.

However, output also fell at a sharp and accelerating rate in Germany amid steepening losses for both goods and services.

While the rest of the eurozone as a whole recorded a more muted decline by comparison to the falls seen in France and Germany, output here has now fallen for five successive months as a severe decline in goods production continued to offset only a very modest rise in services activity.