The upturn in the eurozone private sector economy gained momentum in December. Although the recovery remained modest and fragile overall, growth of output was nonetheless recorded throughout the second half of 2013.
At a three-month high of 52.1 in December, up from 51.7 in November, the final Markit Eurozone PMI Composite Output Index rose to its second-highest level during the past two-and-a-half years. Moreover, the average reading for the final quarter of the year was above that for the prior quarter.
Manufacturing continued to lead the recovery in December. Growth of production accelerated to its fastest since May 2011, as new orders improved aided by a solid increase in new export business.
Service sector business activity also increased further, although the rate of expansion remained modest and eased to a four-month low. This mainly reflected the ongoing weakness of some domestic markets, hindered on the consumer side by still-high unemployment in certain nations.
Marked performance differentials also remained prominent between the member states of the currency union. Ireland and Germany stayed atop the PMI output growth league table, while Spain was the biggest mover over the month with its PMI output index surging to a near six-and-a-half year record. Output in Italy held steady, while France was the only one of the big-four nations to report contractions of both output and new orders.
Eurozone employment was unchanged in December. This was a slight improvement compared to the marginal job losses signalled by the earlier flash estimate, and halted a 23-month sequence of cuts to payroll numbers.
Germany and Ireland both saw solid and accelerated rates of job creation, with the rate of increase in Germany hitting a near two-year record. Although further losses were reported in France, Italy and Spain, the rates of decline eased in all three nations.
Average input prices rose for the seventh month running in December. However, the rate of inflation eased since November and was low by the historical standards of the survey. Pricing power remained weak, as highlighted by further selling price discounts at service providers. In contrast, manufacturing output charges rose slightly.
Services:
The recovery in the eurozone service sector was extended to five months in December. At 51.0, unchanged from the earlier flash estimate, the Eurozone Services Business Activity Index fell to a four-month low, down from November's 51.2, to signal an easing in the overall rate of increase.
Ireland registered the sharpest rate of expansion in services output of the five nations covered, with growth rising to a near seven-year record. Spain also reported faster expansion – the strongest in nearly six-and-a-half years – while Germany reported slower growth than in November. France and Italy continued to contract, with rates of decline broadly unchanged from November and similarly modest.
Growth of new business at eurozone service providers remained lacklustre during December, as faster increases in Ireland and Spain were offset by slower growth in Germany and outright declines in France and Italy. The subdued trend in demand meant that outstanding business in the euro area service sector declined again, extending the current sequence to two-and-a-half years.
Companies maintained a positive outlook for the sector in December, amid expectations that an improvement in underlying economic conditions in 2014 would support higher demand. The overall degree of positive sentiment rose to its highest since mid-2011, with confidence improving in France and Italy and remaining strong in Ireland and Spain. German service providers were the least optimistic overall.
Employment was broadly unchanged over the month in December, following marginal job losses in the prior two months. Payroll numbers rose at faster rates in Germany (two-year high) and Ireland (five-month peak). This was offset by ongoing job losses in France, Italy and Spain.
Input price inflation eased to a six-month low in December, down from November's 11-month record and below the long-run survey average. Service providers' pricing power remained weak, however, leading to a drop in output charges for the twenty-fifth successive month. Only Germany reported an increase in selling prices.
Comment:
Chris Williamson, Chief Economist at Markit said:
"The PMI surveys indicate that the eurozone recovery gain ed further traction at the end of last year. December saw the second-largest increase in business activity since June 2011 and rounded off the best quarter for two-and-a-half years.
Although consistent with a mere 0.2% expansion of GDP during the final quarter, the PMI signalled a strong turnaround in the health of the economy during the course of 2013, and stronger growth looks likely for the first quarter of 2014.
Most importantly, the labour market stabilised in December, ending a period of falling employment that lasted nearly two years. With inflows of new work accelerating, a return to jobs growth should be seen in 2014. The revival in consumer confidence that should result from the labour market improvement should provide an all-important boost to the economy in 2014.
However, while the region as a whole looks set for a strengthening recovery in 2014, growth is uneven, with France in particular having possibly slid back into recession late last year. The upturn in the rest of the region may help bring about a return to growth in France, but the data are highlighting the need for structural reforms to bring about a more sustainable and robust recovery in the region's second-largest economy."
