Euro Area: PMI surprises on the upside in December

Euro Area PMI December 2020

Euro Area: PMI surprises on the upside in December

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, rose to 49.8 in December from the six-month low of 45.3 in November. Therefore, the PMI beat market expectations of 45.8 and moved closer to the 50-threshold that distinguishes contracting from expanding activity in the private sector.

Both the manufacturing and the services sector strengthened in the month, although the latter remained in negative terrain due to renewed lockdowns. Production in the manufacturing sector expanded at a stronger pace than in November, while the contraction in output in the services sector softened considerably. Similarly, new orders grew more robustly in the manufacturing sector, while they fell less steeply in the services sector. Meanwhile, firms cut jobs for the 10th consecutive month, albeit at the softest pace in the 10-month streak. On the price front, input cost inflation intensified, especially in the manufacturing sector, due to widespread shortages for many key raw materials. Consequently, output prices rose at the fastest rate in almost two year in the manufacturing sector, while selling prices for services kept falling.

Assessing the Eurozone’s two largest economies, Germany continued to expand in December, and at a firmer pace, while the pace of contraction in business activity in France eased sharply.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“However, while vaccines mean there’s light at the end of the tunnel, the near-term still looks very challenging for many consumer-facing companies. Although manufacturing is reporting strong growth, fueled by rising exports and a booming performance from Germany in particular, the service sector remains in decline amid ongoing social distancing restrictions. Many of these containment measures look likely to remain in place for some time to come, constraining the economy as we head into the new year.”

Meanwhile, Bert Colijn, Eurozone senior economist at ING, stated:

“All of this optimism reflected in the survey comes at a time when Germany and the Netherlands are starting harsh lockdowns to battle rising new cases of the virus. That makes this PMI backward-looking as the severe lockdowns will have consequences for fourth quarter growth expectations and push them further into the red. Still, the resilience of the economy ahead of stricter measures is an important positive take away in very uncertain times.”

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