Corporate activity in the euro area has shrunk for the eighth consecutive month; the pace of decline in the service sector has accelerated; factory PMI has risen due to statistical anomalies due to Red Sea tensions
LONDON, Jan 24 (Reuters) – Eurozone companies face a tough start to 2024, with tensions in the Red Sea increasing price pressures while demand continues to decline and activity resumes in January. The survey revealed that the company had shrunk and got off to a tough start.
The outlook for manufacturing improved slightly but remained in contraction territory, partially offset by a significant decline in the bloc’s key services industries.
The preliminary Eurozone Composite PMI for HCOB compiled by S&P Global was 47.9 this month, up from 47.6 in December and slightly below the 48.0 expected in a Reuters poll, but it reflects the decline in growth and contraction. It has remained below the 50 level, the dividing line, for eight months.
“Today’s statistics confirm our view that the eurozone economic downturn will last longer than most economists and the ECB expected,” said Christoph Weil of Commerzbank.
The eurozone is expected to expand by 0.1% this quarter, according to a recent Reuters poll. Germany and France, the two largest economies in the 20-nation monetary union, both improved in their manufacturing PMI, but their services PMI worsened. British services companies saw growth pick up again this month, adding signs of slow recovery to a struggling economy, but struggling factories are now being hit by the impact of inflation from tensions in the Red Sea. There is.
The euro zone’s factory PMI delivery time index has fallen sharply, falling below 50 for the first time in a year, as attacks by Yemen’s Iran-aligned Houthis in the Red Sea have disrupted shipping.
The European Union faces the risk of higher consumer prices and slower growth from the disruptions, although the economic impact is not yet felt, a senior EU official said on Tuesday.
However, part of the rise in manufacturing PMI is due to a sharp decline in the delivery time index, which has an inverse relationship to the headline number.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial, said: “The impact of the Red Sea is causing problems in delivery times again.” This interpretation is valid, as the drop in the delivery time index is taken into account positively in the composite index. “It’s a little misleading,” he said. bank.
inflation inflation
Both the input price index and the output price index increased, and there was evidence that inflation was gradually increasing. The production price index rose from 53.8 to 54.2, the highest level since May last year.
This is likely to disappoint European Central Bank policymakers keen to return inflation to their 2% target.
“Inflation pressures remain quite high, which should be a concern for ECB policymakers who are particularly focused on services inflation as a measure of domestic price pressures,” said Bradley Saunders of Capital Economics. Ta.
Services sector PMI was 48. The index fell to a three-month low of 48.4 from August 8, disrupting expectations in a Reuters poll that it would rise to 49.0.
However, optimism about the year ahead improved, with the Business Expectations Index rising from 58.3 to 59.8. The last high was in May.
Manufacturing activity, as indicated by the PMI, has been contracting since July 2022, but it fell again this month, albeit at a slower pace. The headline number rose from 44.4 to 46.6, well above the poll’s prediction of 44.8.
The index measuring output, which is reflected in the composite PMI, also rose from 44.4 to 46.6.
Factories have cut jobs again, but at a slower pace, suggesting the trough may be over. The employment index rose from 46.7 to 47.0.
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Report by Jonathan Cable. Editing: Christina Fincher
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