Eurozone PMI Signals Shallow Technical Recession

The ongoing downturn in the euro area private sector suggested that the region might have entered a shallow recession in the final quarter of 2023, according to the latest purchasing managers’ survey results released by S&P Global on Thursday.

The HCOB flash composite output index rose to 47.1 in November from 46.5 in October. The reading was also above economists’ forecast of 46.9.

Nonetheless, the score was below the natural 50.0 mark for the sixth straight month, indicating a contraction in the private sector.

“Considering the flash PMI numbers for November in our nowcast model indicates the potential for a second consecutive quarter of shrinking GDP,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.

“This would align with the commonly accepted criterion for a technical recession,” Rubia added.

Although the November PMI does not provide much evidence that eurozone GDP growth will turn positive in the fourth quarter, the good news is that the downturn is not deepening, ING economist Bert Colijn said.

“We’re currently likely in a very shallow technical recession,” said Colijn.

Capital Economics’ economist Adrian Prettejohn said the PMI score is consistent with the euro area economy contracting 0.2 percent in the fourth quarter.

Both manufacturing and services sectors shrunk in November but the rate of deterioration was more pronounced in manufacturing, the survey showed.

Manufacturing output dropped for the eighth straight month and services decreased for the fourth consecutive month.

The services Purchasing Managers’ Index, or PMI, posted 48.2, up from 47.8 in the previous month. The score was seen at 48.1.

At 43.8, the manufacturing PMI hit a six-month high. The score was forecast to rise to 43.4 from 43.1. Still the reading was well below 50.0.

Companies reported another fall in new business. Despite the fall, the reduction in new business was the softest in four months amid weaker decreases in both manufacturing and services.

Backlogs of work decreased for the eighth straight month and at a marked pace. The survey showed a decline in employment, which was the first reduction in nearly three years.

On the price front, the survey revealed that input costs increased at the fastest pace since May. Services input prices increased rapidly, while there was a sharp fall in input costs in manufacturing.

Factory output prices decreased for the seventh straight month as firms passed on cost savings to customers.

Services charge inflation intensified to a three-month high. Overall output prices posted a solid rise at the composite level.

Further, companies were moderately optimistic regarding the outlook for activity over the coming year. However, sentiment was weaker than the series average.

The overall slowdown in the eurozone was driven in large part by the two largest economies – Germany and France.

The downturn in the German economy slowed in November as activity shrank at the slowest rate in four months. The flash composite output index climbed to 47.1 from 45.9 a month ago.

The services PMI registered 48.7, up from 48.2 in October. Likewise, the manufacturing measure rose to a six-month high of 42.3 from 40.8 a month ago.

France posted the sharpest reduction in November as output fell markedly on the back of the steepest decline in new orders in three years. The flash composite PMI edged down to 44.5 from 44.6.

The services PMI reading was 45.3, slightly higher than October’s score of 45.2. Meanwhile, the manufacturing index slid to a 42-month low of 42.6 from 42.8 in the previous month.

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