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Eurozone Private Sector Growth Unexpectedly Slows To 5-1/2-year Low

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Eurozone private sector expanded at the weakest pace in five-and-a-half years at the start of the year, led by weaker pace of growth in both manufacturing and services, defying expectations for further improvement, preliminary survey data from IHS Markit showed on Thursday.

The flash Composite Purchasing Managers' Index, or PMI, dropped to a 66-month low of 50.7 from 51.1 in December. Economists had forecast a score of 51.4.

A score above 50 suggests growth in the private sector.

The flash manufacturing PMI fell to a 50-month low of 50.5 from 51.4 in December, which was much weaker than the 51.3 reading economists had predicted.

The manufacturing PMI Output Index dropped to a 67-month low of 50.4 from 51 in December.

The flash services PMI eased to a 65-month low of 50.8 in January from 51.2 in December. Economists had expected the index to rise to 51.5.

"The disappointing survey data indicate that GDP is rising at a quarterly rate of just 0.1 percent," IHS Markit Chief Business Economist Chris Williamson said.

"Companies are concerned about a wider economic slowdown gathering momentum, with rising political and economic uncertainty increasingly affecting risk appetite and demand," Williamson added.

Business output growth was marginal in the euro area private sector in January and new work decreased month-on-month, marking the first fall since November 2014. The decline in new work was also the biggest since June 2013.

Total exports decreased for a fourth month in a row and at the fastest pace since the combined series began four years ago. Services exports decreased at a faster rate.

Backlogs decreased for a second straight month and at the fastest pace since December 2014.

The pace of job creation in the private sector slowed for a fifth successive month, led by the services sector, and was the weakest since September 2016

Private sector's future optimism improved slightly during the month, yet remained close to recent four-year lows to reflect a gloomier picture, the survey said.

International trade tensions, Brexit and rising political stress, especially in France and Italy but also globally, dominated businesses' worries.

The weakness of the auto sector also remained a key area of concern, IHS Markit said.

Flash PMI data for Germany and France were also released on Thursday.

The German private sector growth improved at a faster-than-expected pace to a two-month high of 52.1 from December's 51.6. Economists had forecast a score of 51.9.

The Services PMI also hit a two-month high of 53.1 vs. 51.8 in December. The reading also exceeded the 52.2 score economists had predicted.

In contrast, the German manufacturing PMI fell to a 50-month low of 49.9 from 51.5 in December. Economists were looking for a reading of 51.4.

Output price inflation accelerated partly due to rising selling prices in Germany associated with increased road toll charges as well as some signs of upward wage pressures.

Input cost inflation, however, moderated to the lowest for nearly one-and-a-half years.

In France, the Composite PMI dropped to a 50-month low of 47.9 from December's 48.7. Economists had predicted an improvement to 51.

French businesses blamed the acceleration in the pace of decline on the combination of disruptions caused by on-going 'Gilets Jaunes' protests and a generally weakened demand environment, IHS Markit said.

The French services PMI fell to a 59-month low of 47.5 in January from 49 in December. Economists had expected a higher score of 52.2.

Meanwhile, the manufacturing PMI hit a three-month high of 51.2 in January from 49.7 in December. Economists were looking for a higher reading of 51.4.

"The survey's output and price gauges have both now fallen into territory more associated with the ECB loosening rather than tightening policy, raising pressure on the central bank to acknowledge that downside risks to the outlook now predominate," Williamson said.

The European Central Bank is set to announce its latest policy decision at 7.45 am ET on Thursday. The bank is widely expected to leave its interest rates and forward guidance unchanged.

Economists expect an interest rate hike only late this year, as indicated by the ECB, and a change to the forward guidance on interest rates in June.

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