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Flash Eurozone PMI rises from 45.3 in November to 49.8 in
December.
Manufacturing expansion gains momentum, but service sector
downturn also eases markedly.
Business optimism lifts to highest since April 2018.
Eurozone business activity came close to stabilising in
December, according to preliminary PMI data. Stronger manufacturing
output growth, led by Germany, was accompanied by a marked slowing
in the rate of decline of service sector activity. Encouragingly,
future output expectations jumped to a 32-month high, as prospects
brightened amid recent news on vaccine developments.
A better than expected end to the year
The survey data suggest that the eurozone economy is faring
better than expected in December. The IHS Markit flash composite
PMI came in at 49.8, ahead of consensus expectations of 45.8, as
polled by Reuters. As such, the data hint at the economy close to
stabilising after having been plunged back into a severe decline in
November amid renewed coronavirus disease 2019 (COVID-19) lockdown
measures.
The fourth quarter downturn consequently looks far less steep
than the hit from the pandemic seen earlier in the year. Although
down from 52.4 in the third quarter, the fourth quarter average of
48.4 is far higher than the mean of 31.3 seen in the second
quarter.
The picture is nevertheless very mixed by sector. Although
manufacturing output growth accelerated in December, having slowed
in November, the service sector saw output contract for a fourth
successive month, albeit with the rate of decline easing markedly
to the slowest since September as fewer companies reported output
to have been hit by lockdown restrictions compared to November.
In fact it was this sharp easing in the service sector which was
the main driver behind the PMI coming in higher than anticipated:
analysts were merely expecting the services PMI to rise from 41.7
to 41.9, but the flash reading came in at 47.3. However, note that
at 55.5 the headline manufacturing PMI also beat expectations
(53.0).
German manufacturing leads the eurozone
A key differential between the performance of manufacturing and
services has been in terms of exports. While exports of goods rose
at the second-fastest rate in 34 months, falling just short of
October's recent high, service sector exports once again fell
sharply, the rate of decline moderating only slightly on November
due to ongoing strict travel and tourism restrictions.
Germany, with goods exports playing an important role in the
economy, has consequently continued to outperform the eurozone
average.
Germany reported an expansion of output for the sixth successive
month, its flash composite PMI rising from 51.7 to 52.5 in
December. Manufacturing output growth cooled for a second month
running but remained among the highest seen in the survey's
history, accompanied by a moderation in the service sector's
downturn.
Output meanwhile continued to fall in France for a fourth
successive month, though the flash composite PMI jumped from 40.6
to 49.6 to indicate a sharp easing in the rate of contraction to
the slowest seen over this period of decline. Manufacturing output
returned to modest growth and service sector activity came close to
steadying.
A more substantial contraction of activity was reported in the
rest of the eurozone, though even here the rate of decline waned to
the weakest since September as improved manufacturing output growth
helped counter a moderating drop in services output. The flash
composite output index rose from 42.8 to 47.5.
Greater expectations
In addition to the fourth quarter coming in ahead of consensus
expectations, companies have also become increasingly optimistic
about the year ahead, with vaccine roll-outs expected to help
restore businesses to more normal trading conditions as 2021
progresses.
Business expectations about output in the coming 12 months rose
to the highest since April 2018. Sentiment about future prospects
hit a 27-month high in the service sector and a 34-month high in
manufacturing.
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, fuelled 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.
After contracting 7.4% in 2020, IHS Markit's forecasting team is
anticipating GDP to rise by just 3.7% in 2021.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
