Economy

Euro zone economy remains weak in new year

Growth in Germany’s private sector picked up as growth in services activity made gains

Euro zone business activity remained weak at the start of the year, a survey showed.

Fri Jan 24 2020 - 09:11

Euro zone business activity remained weak at the start of the year, a survey showed a day after the European Central Bank said the manufacturing sector remained a drag on the economy, but there were some signs the worst may be over.

IHS Markit’s euro zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, held at 50.9 in January, missing the median prediction in a Reuters poll for 51.2. Anything above 50 indicates growth.

“While the year may have changed, the performance of the euro zone economy was a familiar one in January.

Output growth was unchanged from the modest pace seen in December, signalling that the economy failed again to record a pick-up in growth momentum,” said Andrew Harker, associate director at IHS Markit.

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The headline index was bogged down by a still struggling factory industry. The manufacturing PMI marked the 12th month below the break-even mark, registering 47.8 - albeit an improvement on December’s 46.3 and well above the Reuters poll’s 46.8.

An index measuring output, which feeds into the composite PMI, rose to 47.5 from 46.1, its highest since August. While most forward-looking indicators in the manufacturing PMI remained in negative territory, they were moving in the right direction.

The new orders, employment, backlogs of work and quantity of purchases indexes were all still sub-50 but did rise. However, there was evidence the bloc’s dominant services industry is weakening as its PMI dropped to 52.2 from 52.8, confounding expectations for no change.

And likely of concern to policymakers, demand weakened suggesting there won’t be a significant turnaround anytime soon. The services new business index fell to 51.5 from 52.1. But optimism about the year ahead bounced.

The composite future output index climbed to 61.2 from 59.4, its highest reading since September 2018.

In, Germany, the private sector gained momentum in January as growth in services activity picked up and the pullback in manufacturing eased, a survey showed on Friday, suggesting Europe’s largest economy may be picking up at the start of 2020.

IHS Markit’s flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, rose to 51.1 from 50.2 the previous month.

It was the highest reading in five months and beat the consensus forecast in a Reuters poll of analysts who had expected a smaller increase to 50.5.

The figures suggest that “the storm clouds over the German economy may be starting to clear”, said IHS Markit economist Phil Smith. He added that the manufacturing sector moved closer to stabilisation while services posted robust growth.

“Demand has started to firm up a little both at home and abroad, which is reflected in a first rise in new business for seven months,” Smith said.

Business expectations also improved, with optimism among manufacturers reaching its highest level in 1-1/2 years, the survey showed.

The figures chimed with a ZEW survey published on Tuesday which showed the recent truce in the US-China trade dispute left German investors at their most optimistic since mid-2015.

The German economy expanded by 0.6 per cent last year, its weakest growth since 2013, as manufacturers struggled with a slowing world economy and rising uncertainty caused by trade disputes and Britain’s planned-but-delayed departure from the European Union. – Reuters

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