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Euro zone business growth stayed weak in December – PMIs

Euro zone business growth remained weak in December, with tepid foreign demand exacerbating a contraction in manufacturing and offsetting a slight pick-up in services activity. 

IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good guide to economic health, stayed at 50.6 in December, a touch below a median 50.7 predicted in a Reuters poll. 

Anything above 50 indicates growth. 

The private sector business report published today suggests the risks to the euro zone outlook remain skewed to the downside, despite Christine Lagarde’s more upbeat tone in her first news conference as head of the European Central Bank. 

The euro zone’s industrial sector has struggled throughout the year, with manufacturing activity contracting for the 11th month in a row in December. 

The factory PMI fell to 45.9 from 46.9, below the 47.3 predicted in a Reuters poll. 

The bloc’s dominant service industry grew a bit faster, however, with that PMI rising to a four-month high of 52.4 from 51.9, above the 52 predicted in a Reuters poll.

“The big picture is of an economy showing some stabilisation in activity – but today’s drop in the manufacturing PMI is yet another useful reminder that the bloc’s manufacturing sector is far from being out of the woods,” wrote Nicola Nobile, economist at Oxford Economics.

She added that the data are consistent with just 0.1% economic growth in the fourth quarter. 

“While there are some tentative signs of improvement in new orders, the euro zone labour market is slowing down, with job creation that has almost ground to a halt at its lowest levels for over five years,” Nobile wrote. 

There was no reaction to the data in financial markets, which were instead focused on news of a preliminary trade deal agreed between the US and China. 

Among the euro zone’s two largest economies, Germany’s business activity contracted for a fourth month in a row while in France, it grew at a steady pace so far in December despite a nationwide strike. 

An index measuring output, which feeds into the composite PMI, fell to 45.9 from 47.4, also marking the 11th month of contraction. 

New factory export orders were still shrinking, but showed a slowing in the rate of decline. 

“We project gradual acceleration from next year, with the ECB on hold, supporting the recovery,” noted economists at Morgan Stanley who called the PMI data “weak, but hopeful.”

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