Euro zone business downturn eases in January -PMI By Reuters

Euro zone business downturn eases in January -PMI By Reuters

© Reuters. FILE PHOTO: View of the production line of Science4you science toy factory in Lisbon, Portugal, December 2, 2020. REUTERS/Pedro Nunes/File Photo

LONDON (Reuters) – The downturn in euro zone business activity eased this month but an improvement in the manufacturing outlook was partly offset by a steeper decline in the bloc’s dominant services industry, a survey showed on Wednesday.

HCOB’s preliminary Composite PMI, compiled by S&P Global, rose to 47.9 this month from December’s 47.6, just shy of expectations in a Reuters poll for 48.0 but marking its eighth month below the 50 level separating growth from contraction.

“The commencement of the year brings positive tidings for the euro zone as manufacturing experiences a widespread easing of the downward trajectory witnessed in the past year,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“In the domain of services, the contraction in output is currently moderate, echoing the trends observed in the fourth quarter of the previous year.”

There was evidence of inflation creeping back up with both input and output price indexes rising. The output prices index rose to 54.2 from 53.8, its highest since May last year.

That will likely disappoint policymakers at the European Central Bank who are keen to get inflation back to their 2% target.

“In the ongoing discourse surrounding the optimal timing of rate cuts by the ECB, the PMI price indicators align with the sentiments of the hawks,” de la Rubia said.

The services PMI fell to a three-month low of 48.4 from December’s 48.8, confounding expectations in a Reuters poll for an uptick to 49.0.

However, optimism about the year ahead improved and the business expectations index jumped to 59.8 from 58.3. It was last higher in May.

Manufacturing activity, which the PMI suggests has been contracting since July 2022, declined again this month – albeit at a shallower pace. The headline reading bounced to 46.6 from 44.4, well ahead of the poll estimate for 44.8.

An index measuring output that feeds into the composite PMI also rose to 46.6 from 44.4.

While factories reduced headcount again, they did so at a shallower pace, indicating a trough may have passed. The employment index rose to 47.0 from 46.7.

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