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Further Evidence Of Eurozone In Recession?

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Separate data release on Monday painted a mixed picture for the euro area, but economists continued to assess that the single currency bloc is sliding into recession, as the European Central Bank prepares for another interest rate hike next week.

The purchasing managers' survey by S&P Global showed that downturn in the euro area private sector extended for a fifth month in a row in November, although the pace of contraction softened due to a slower decline in manufacturing, which masked a sharp deterioration in the dominant services sector.

Elsewhere, official data from Eurostat showed that Eurozone retail sales logged its biggest decline so far this year in October on weaker food and non-food products turnover as record inflation squeezed consumer spending.

Meanwhile, Euro area investor sentiment rose for a second month in a row in December to its highest level since June amid a strong improvement in both the assessment of the current situation and the outlook for the single currency bloc, survey data from the behavioral research institute Sentix showed.

That said, the think tank cautioned that this correction in assessments should not be misinterpreted as a general trend reversal.

The composite output index, which combines manufacturing and services PMIs, advanced to 47.8 in November from 47.3 a month ago, the S&P Global survey showed. The reading came in line with the flash estimate.

The score has remained below the neutral 50.0 mark for the fifth consecutive month. Moreover, the survey showed that the private sector experienced its longest downturn since the recession between 2011 and 2013 that was triggered by the debt crisis.

The fifth consecutive monthly fall in output signals the likelihood of the currency bloc sliding into recession, Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

Nonetheless, the overall rate of contraction in November suggests that GDP contracts by a mere 0.2 percent, Williamson noted.

In November, the Organisation for Economic Co-operation and Development projected the Eurozone real GDP growth at 3.3 percent in 2022 and only 0.5 percent in 2023 owing to Russia's war of aggression against Ukraine, monetary policy tightening and the global slowdown.

Production across the manufacturing and services weakened in November, PMI data showed. While the downturn in manufacturing eased since October, services activity fell at its sharpest pace since February 2021.

The services Purchasing Managers' Index came in at a 21-month low of 48.5 versus 48.6 in October. The flash score was 48.6.

For the first time since May 2020, combined manufacturing and services output fell in each of the euro area nations where composite PMI data are available.

Germany remained the worst performer in November. At the same time, softer contractions were also seen in Italy and Spain, although France posted its first decline in output since February 2021.

In Germany, business activity continued to fall, albeit at a softer pace. The S&P/BME composite output index posted 46.3 in November, up from October's 45.1 but slightly below the flash 46.4. The overall improvement owed exclusively to a weaker reduction in manufacturing output.

The services PMI came in at 46.1 versus 46.5 in the previous month. The flash reading was 46.4.

The French private sector contracted in November as output levels in both manufacturing and services decreased from October, although the sharpest downturn was at manufacturers.

The composite PMI slid to 48.7 in November, from 50.2 in October and was below the flash 48.8. The reading fell below the threshold 50.0 mark for the first time since February 2021.

The services PMI registered 49.3, down from 51.7 in October, ending a 19-month sequence of continued expansion. The preliminary score for November was 49.4.

Italy's private sector shrank for the fifth successive month in November, with the downturn remaining broad-based across both manufacturing and services. The composite index posted 48.9 versus 45.8 in October. The reading signaled the weakest pace of contraction since August.

The services PMI rose more-than-expected to 49.5, from 46.4 in October. The score was seen at 48.3.

Spain's service sector shrank only moderately in November as the sharp fall in manufacturing output was nearly offset by a return to growth in the dominant services industry. The composite output index came in at 49.6 compared to 48.0 in the previous month.

The services PMI improved to 51.2 from 49.7 in October. This was also above economists' forecast of 50.5.

Eurostat data showed that retail sales slid 1.8 percent month-on-month in October, in contrast to the 0.8 percent increase in September. This was slightly bigger than economists' forecast of -1.7 percent.

The monthly fall was driven by the 2.1 percent decrease in non-food products turnover and 1.5 percent fall in sales of food, drinks and tobacco.

The Sentix investor confidence index climbed sharply to -21.0 from -30.9 in November. Economists had forecast a modest improvement in the reading to -27.6.

The survey was conducted from December 1 to 3 among 1,268 investors.

"Investors hope for an economic turnaround," Sentix Managing Director Manfred Hubner said.

They are spreading hope that thanks to mild winter weather, sufficient gas in storage and a possible peak in inflation data, the economic downturn has also passed its zenith, Sentix said.

However, the institute added that "The dangers of recession have by no means been averted."

The expectations index of the survey surged to -22.0 from -32.3, marking the highest reading since March.

The current assessment measure rose to -20.0 from -29.5.

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