Euro Zone’s Private-Sector Contraction Eases on Services
(Bloomberg) -- The euro-area’s private sector shrank less than anticipated in December thanks to a bigger-than-expected contribution from the services sector.
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S&P Global’s Composite Purchasing Managers’ Index increased to 49.5 from 48.3 the previous month, remaining just below the 50 level that separates growth from contraction. Analysts had estimated the index to be little changed from November.
The downturn in manufacturing, now well into its third year, persisted, but the index for services advanced back above 50 — signaling that hopes for a gradual recovery remain intact.
“While manufacturing is still deep in recession, the rebound in services output is a welcome boost for the overall economy,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said Monday in a statement. “Euro-zone companies were actually slightly more confident than in November that business activity will be higher a year from now than it is today.”
The European Central Bank, though, is worried about the region’s economic prospects, cutting interest rates for the fourth time since June last week. President Christine Lagarde said momentum is fading and risks remain skewed to the downside, citing “greater friction” in global trade.
The ECB also trimmed its outlook for next year’s expansion to 1.1% from 1.3%. And most analysts still see those forecasts as overly optimistic since they don’t account for any impact from the kind of US trade tariffs that President-elect Donald Trump has threatened.
What Bloomberg Economics Says...
“The rise in the headline PMI figure for the euro area is good news, although activity in the monetary union remains muted. The uncertainty created by Donald Trump’s electoral victory is likely to continue weighing on the economy in the start of next year, keeping the ECB lowering interest rates at its next meeting in January.”
—David Powell, senior euro-zone economist. Click here for full REACT
The disappointing performance of late has been down to a “striking” inertia in consumption, according to Lagarde, though she said Monday in a speech that pessimism about real incomes “should dissipate as the high-inflation episode moves further into the rear-view mirror.”
Governing Council member Peter Kazimir said later that Europe’s economic malaise is “largely structural” and “demands solutions that extend beyond the remit of monetary policy,” backing a continuation in the current pace of rate cuts.