• Prior 48.7
  • Composite PMI 47.6 vs 47.0 prelim
  • Prior 47.6

Despite the positive revision, this still reaffirms a downturn in the euro area economy to wrap up the 2023 year. Both manufacturing and services output saw declines in December, with overall activity levels being held back by subdued demand conditions for the most part. HCOB notes that:

“That is neither fish nor fowl. The service sector across the Eurozone is experiencing a slight contraction, much like it did in November, while job numbers are still ticking up, albeit marginally. It's not quite recession territory yet for services, but the vibe is far from growth-oriented. There are a lack of clear signals indicating an imminent return to robust expansion.

“The Composite PMI, a reliable indicator of overall economic performance, is sounding the recession alarm for the Eurozone, though. Adding weight to this observation is our GDP Nowcast model, which forecasts a back-to-back contraction in the region's output for the fourth quarter.

“In the face of a stagnant services sector, it's impressive that service providers are successfully transferring a portion of their growing input costs to customers. Sales prices, in fact, saw a noticeable increase in December, and at a slightly elevated pace. This will go against those members of the European Central Bank who are inclined to cut rates already in March. We expect a first rate cut in June.

“Signals of future activity are not painting an optimistic picture. New business opportunities continued to contract at a rate similar to previous months. Although there is a slight uptick in expectations for activity in the next 12 months, the index still lingers well below the long-term average.

“The trajectory in the service sectors of the top four Eurozone countries varies significantly. Spain stands out as the clear winner, with its service providers achieving growth for the fourth consecutive month. In contrast, Germany and Italy have been languishing in a state of stagnation for a similar duration. Meanwhile, France’s service providers take the unfortunate title of worst performers, with their output consistently declining for seven consecutive months.”