In December, the business activity in the euro area experienced a contraction for the second consecutive month, driven by a sharp downturn in manufacturing, though there was a slight recovery in the services sector. The HCOB Flash Eurozone Composite PMI Output Index registered at 49.5 in December, up from 48.3 in November, as noted by data from S&P Global and Hamburg Commercial Bank.
Analysts had predicted a minor decrease to 48.2, yet the index rose to its highest level in two months, signifying a rebound in services after the first contraction in ten months. Private enterprises in Europe reduced their output in response to a decline in new orders that has persisted for seven months.
New export orders also dropped at a rate faster than total new business. Consequently, businesses made job cuts for the fifth consecutive month, with this reduction the steepest in four years. Manufacturing continued to struggle, with the PMI holding steady at 45.2 for two months, slightly above expectations of 45.3.
Conversely, the service sector index reached a two-month high of 51.4, reflecting a robust recovery from the prior reading and consensus of 49.5. In December, both input costs and output price inflation rates accelerated, with charges increasing at a rate exceeding the series average. 'At their December 12 meeting, the ECB mentioned they are closely observing service sector inflation, which remains significantly higher than general inflation.
The PMI price indicators are not providing any reassurances here... Rising wage agreements are partially responsible, as businesses transfer these costs to customers,' commented Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. The contraction in the euro area's private sector was primarily influenced by its largest economies, Germany and France, which remained in a downturn throughout December.
In contrast, the output from the rest of the eurozone grew at the most robust rate seen in six months. 'Germany and France... are navigating through politically uncertain times,' de la Rubia stated. 'This situation is hindering the implementation of essential reforms that could stimulate growth in the short term and is exacerbating the ongoing economic fragility in both nations.' Looking ahead to the next twelve months, both manufacturers and service providers are becoming increasingly optimistic about their output.
While business confidence has improved, it still lingers below the average series level following a dip to a one-year low in November..