Eurozone private sector growth stagnant in weakest quarter since 2013

LONDON (ICIS)–Eurozone private sector output was flat month on month in December as the bloc’s recovery failed to gain momentum, ending the weakest quarter for business in six years, analysts at IHS Markit said on Monday.

Flash eurozone composite purchasing managers’ index (PMI) for the region stood at 50.6 in December, unchanged from the previous month, as a modest uptick in service sector growth was counterbalanced by fresh falls for the manufacturing sector.

PMI scores of above 50.0 signify growth.

December eurozone manufacturing sector output slumped to its lowest level in over seven years, falling back after several months of subdued improvement.

Eurozone manufacturing has been in contraction territory through much of the year as a result of a collapse in exports, particularly for German producers, on the back of economic weakness, investor bearishness and the impact of the US-China trade war.

The sector had been inching back towards growth in recent months but slumped to 45.9 in December from 47.4 in November, despite stronger French performance.

December services sector PMI ticked up to 52.4 during the month from 51.9 in November.

“The Eurozone economy closes out 2019 mired in its worst spell since 2013, with businesses struggling against the headwinds of near-stagnant demand and gloomy prospects for the year ahead,” said Markit chief business economist Chris Williamson.

The data for the quarter points to eurozone GDP growth of around 0.1%, he added.

The UK private sector also continued to struggle during the month, as the country remains mired in uncertainty around its economic prospects as a likely date to quite the EU draws closer.

Composite PMI for the country stood at 48.5 in December from 49.3 a month earlier, with manufacturing growth falling almost three points to 45.8 from 49.1 in November, and services softening to 49.

Manufacturers moved during the month to attempt to trim back inventory overhang, which acted as an additional brake on output.

The rate of manufacturing business decline also steepened in Germany during the month, but the mildest fall in new order book rates since July provided some cause for investor optimism.

“There are scant signs of any imminent improvement,” Williamson added.

“New order growth remains largely stalled and job creation has almost ground to a halt, down to its lowest for over five years as companies seek to reduce overheads in the weak trading environment and uncertain outlook.”

Nicola Nobile, lead economist an analyst Oxford Economics, described the drops in eurozone and German manufacturing output as a “surprise”, noting that the labour market is slowing down.

“The drop in German manufacturing activity came as a surprise since other recent indicators for the sector have shown some stabilisation in industrial activity,” she said.

“While we wait for Wednesday’s [18 December] Ifo numbers, the Q4 data for Germany remains mixed but rather weak so far.

“Risk of contagion to the service sector remains until downside risks have fallen and result in a pickup in manufacturing activity and confidence,” added ING senior eurozone economist Bert Colijn.