Eurozone economy remains weak in January but shows signs of improvement

Amid economic weakness in the eurozone at the start of the year, there were tentative signs of improvement as contractions in activity and new orders were less severe and growth expectations strengthened. Employment is stabilizing and export demand is falling at the slowest pace since April 2023.

Index HCOB Composite PMI for overall euro area activity stood at 47.9 (47.6 in December), indicating a six-month high, while the services PMI remained at 48.4 (48.8 in December), indicating a three-month low. Business confidence reaches its highest level in nine months; inflationary pressure is increasing. While the index is still below the unchanged 50.0 level and therefore signaling a decline in business activity in the eurozone, it recorded the slowest pace of decline since July 2023, according to S&P Global’s HCOB report.

“Persistent inflationary pressures also remained evident, particularly in the prices of goods and services. Both selling and purchasing prices rose at the fastest pace in eight months. The slower contraction in manufacturing activity led to a weaker decline in the overall level of overall activity in January. , which offsets a slightly faster deterioration in services sector activity,” the report released today noted.

“However, country-level data revealed marked divergence in regional economic behavior. southern economies At the beginning of 2024, eurozone countries saw an improvement in economic activity levels. improvements in Spain and Italy They were the strongest for six and eight months respectively. On the contrary, reductions in Germany and France worsened, and the composite index of overall activity fell in both countries (but remained above the lows recorded in 2023),” he continues.

The survey also shows that the number of new orders received fell due to weak demand, but the fall was weaker than in previous months, helping to stabilize employment. For another month, growth expectations improved, although prices were under greater pressure in the eurozone. Rates inflation of purchase and selling prices They accelerated to an eight-month high due to sharper price increases in the services sector.

The HCOB Services Sector PMI fell to 48.4 in January from 48.8 in December, and price pressures in the services sector remained pronounced: inflation rates in both prices paid and prices collected accelerated in January, reaching their highest levels in four and seven months. respectively.

North and south: the resilience of Spain and Italy

Cyrus de la Rubia, chief economist at HCOB, notes in a commentary on the report that: “there is north-south divide in the eurozone services sector, but perhaps not in the way you might expect. Contrary to the general perception that southern European countries are the weak link in the monetary union, these economies are currently performing relatively well. This positive trend acts as a countervailing force and partially mitigates the decline recorded in Germany and France. Thanks to resilience demonstrated by Italy and SpainThe services PMI showed only a slight decline to 48.4, remaining close to 50-inch growth territory.

“Indecision European Central Bank When it comes to lowering interest rates, it becomes clearer (…) as buying and selling prices for services products rise, the ECB is unwilling to make monetary policy more accommodative. However, it is in a difficult situation, which is exacerbated by the latest official GDP data for the fourth quarter of 2023, which indicates that the economy has narrowly avoided a technical recession,” he continues.

Labor shortages are a widespread reality in the eurozone, as evidenced by the marked rise in wages in the four main eurozone countries. Commodity price inflation in these countries increases the impact of this phenomenon. “Surprisingly, companies have shown a clear reluctance to cut their workforce, a trend even seen in Germany and France, where the services sector remains in poor shape. Business expectations have improved slightly, suggesting that better times are coming

. However, with new orders falling for the seventh month in a row, a quick recovery is unlikely“.