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The downturn in the eurozone’s struggling economy is easing, according to a closely tracked business survey, which found a stabilisation of activity at services companies offset a steep decline in manufacturing — particularly in Germany.
S&P Global’s flash eurozone composite purchasing managers’ index, which measures business activity across the bloc, rose to an eight-month high of 48.9 this month, up from 47.9 in January. Economists polled by Reuters had forecast a smaller increase to 48.5.
Within the overall figures, the contraction in German business activity appeared to deepen — hit by the biggest drop in demand for four months.
But there were signs of a shallower downturn in France, where orders fell at the slowest pace since last May, while the rest of the eurozone continued to achieve modest growth.
“There is a glimmer of hope as the eurozone inches towards recovery,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which sponsors the survey, while warning that Germany was “acting as a brake on eurozone growth”.
Purchasing managers added to hopes of a pick-up in the wider eurozone economy by reporting the fourth consecutive monthly easing of the decline in new orders, a pick-up in hiring and an improvement in the overall outlook for the year ahead.
However, the ninth consecutive reading below the 50 mark that separates contraction from expansion indicates the eurozone economy is likely to grow at best only tepidly at the start of this year after stagnating for much of 2023.
“The main message is that the economy is still broadly stagnant,” said Andrew Kenningham, an economist at consultants Capital Economics, although he said the survey also suggested “the region’s prolonged near-recession is easing”.
Businesses reported the steepest rise in selling prices since last May, mainly due to higher labour costs as wages rise. This is likely to worry European Central Bank officials about the risk of persistent inflation that is making them wary of cutting borrowing costs too soon.
“These data will support the hawks” at the ECB, said Tomasz Wieladek, an economist at investor T Rowe Price. “The risk that the first [interest rate] cut this year is delayed past June is clearly rising.”
The interest rate-sensitive two-year German government bond yield — a benchmark for the eurozone — rose 0.05 percentage points to 2.91 per cent, its highest level since November, as investors reduced their bets on the timing of rate cuts this year.
Delivery times for eurozone manufacturers declined despite shipping disruption caused by the crisis in the Red Sea as weaker demand “took pressure off supply chains”, S&P said. Input prices for factories continued to fall, suggesting the turmoil caused by attacks on vessels by Yemen’s Houthi rebels is not causing major problems for European businesses.
The eurozone economy flatlined in the final quarter of last year, dragged down by a decline in German output. Most economists expect a similarly weak performance at the beginning of this year, although many predict growth in the bloc will pick up later in the year as inflation keeps falling and interest rates start to be lowered.
Source: Economy - ft.com
