LONDON (Reuters) – The downturn in euro zone business activity surprisingly deepened in December, according to a closely watched survey which indicated the bloc’s economy is almost certainly in recession.
Last quarter the euro zone economy contracted 0.1%, official data has shown, and December’s Purchasing Managers’ Index (PMI) – seen as a good gauge of economic health – suggested activity has now declined in every month of this quarter.
HCOB’s preliminary Composite PMI, compiled by S&P Global, fell to 47.0 this month from November’s 47.6, confounding expectations in a Reuters poll for an uptick to 48.0 and marking its seventh month below the 50 level separating growth from contraction.
“The figures paint a disheartening picture as the euro zone economy fails to display any distinct signs of recovery. On the contrary, it has contracted for six straight months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“The likelihood of the euro zone being in a recession since the third quarter remains notably high.”
Suggesting firms don’t see a big improvement anytime soon they reduced headcount for a second month. The composite employment index was at a three-year low of 49.6, just shy of November’s 49.7.
A PMI for the bloc’s dominant services industry fell to 48.1 from 48.7, far short of the Reuters poll prediction of a rise to 49.0.
Demand for services fell again as indebted consumers feeling the pinch from record-high borrowing costs in the 20-country currency union kept their hands in their pockets. The new business index dipped to 46.6 from 46.7.
The European Central Bank left interest rates on hold on Thursday and pushed back against bets on imminent cuts by reaffirming borrowing costs would remain at record highs. A recent Reuters poll showed it would be the second quarter before it starts cutting.
Factories also had another disappointing month. The manufacturing PMI held steady at November’s 44.2 – missing the Reuters poll forecast for 44.6 and chalking up its 18th month sub-50.
An index measuring output fell to 44.1 from 44.6.
But factory managers were more optimistic about the year ahead and the future output index jumped to 55.6 from 53.3, its highest since May.
(Reporting by Jonathan Cable; Editing by Susan Fenton)
