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News : EU Economy Last Updated: Dec 17, 2014 - 11:03 AM

Eurozone business activity grew at a slightly faster rate in December
By Finfacts Team
Dec 16, 2014 - 9:09 AM

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Eurozone business activity grew at a slightly faster rate in December, but the pace of expansion was still one of the weakest seen over the past year. The Markit Eurozone PMI (purchasing managers' index) rose from November’s 16-month low of 51.1 to 51.7 in December, signalling a modest upturn in the rate of growth. However, the reading was the second-lowest seen over the past year and failed to prevent the average reading for the fourth quarter from falling to the lowest since the third quarter of 2013.

Rates of expansion remained weak in both manufacturing and services. However, while growth of manufacturing output was unchanged on November, a slightly upturn in the pace of business activity growth was recorded in the service sector.

Weakness was again particularly evident in the core countries. German companies reported the smallest increase in business activity since June 2013, while activity fell in France for the eighth successive month, albeit to the smallest extent seen for four months.

Outside of Germany and France, activity rose on average at the fastest rate for five months.

The survey found signs of demand picking up, with inflows of new orders rising after slipping into decline in November. However, the increase was only marginal, with both manufacturing and services posting weak rates of expansion. While France saw the first (though minor) increase in new orders for four months, German firms reported a second successive monthly decrease. Elsewhere, overall new order growth accelerated to a five-month high.

Employment growth picked up to a five-month high alongside the modest revival in new orders. But the overall pace of job creation remained weak, with ongoing job losses again seen in France and the pace of growth in Germany easing to the lowest since August. There was better news across the rest of the region, however, where the survey recorded the largest monthly increase in staffing levels since November 2007.

Average selling prices fell for the thirty-third straight month, though the rate of decline eased to a three-month low, slowing in both manufacturing and services. Falling prices were again seen in Germany, France and elsewhere across the Eurozone on average.

Lower oil and other commodity prices helped bring down input costs in manufacturing, resulting in the largest monthly fall in eight months, and lower fuel costs also fed through to generate the smallest overall increase in service sector costs since mid-2010. Measured overall, input costs rose at the

slowest rate for eight months. Costs fell in Germany for the first time in one-and-a-half years, while the rate of increase slowed across the rest of the region on average. Input price inflation in France accelerated slightly to a four-month high.

Looking ahead, expectations for the year ahead in the service sector dipped from November’s four-month high to again run well below levels seen earlier in the year. In manufacturing, the forward-looking new orders to inventory ratio picked up to a four-month high, though likewise remained subdued.

Chris Williamson, chief economist at Markit said:  "The Eurozone saw slightly faster growth of business activity in December but still ended the year on a whimper rather than a roar, with worrying weakness still evident in the core countries of France and Germany. The increase was the second–lowest seen over the past year, suggesting the euro area economy expanded by a mere 0.1% in the fourth quarter.

"Business activity is growing at the weakest rate for a year-and-a-half in Germany and continues to fall in France. The upturn was therefore driven by the rest of the region, where growth hit a five-month high to round off the best year the ‘periphery’ has seen since 2007.

"Meanwhile, inflationary pressures have fallen, linked largely to lower oil prices. Firms’ costs barely rose and selling prices continued to fall.

"On one hand, the upturn in the PMI supports the view that the ECB’s stimulus is starting to take effect and that more time is needed to assess the impact of current measures. On the other hand, the disappointing rate of expansion, and especially the weakness evident in Germany and France, will add to calls for additional stimulus to be sanctioned without further delay."

The Eurozone PMI is produced by Markit and is based on original survey data collected from a representative panel of around 5,000 companies based in the euro area manufacturing and service sectors. National manufacturing data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The flash estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

© Copyright 2011 by Finfacts.com

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