Eurozone's economic distress: Private sector falters amid inflation
According to the latest S&P study, the eurozone's private sector ended the year in decline, with the fastest pace of employment reduction in four years. Companies are reducing their workforce in response to decreased orders and economic activity, and the crisis is intensifying.
The PMI for the eurozone, published on Monday by S&P, rose in December to 49.5 points from November's 48.3 points, remaining below the 50-point threshold that separates growth from decline. The service sector rebounded slightly, while industrial production experienced the deepest drop in a year.
The PMI reading indicates that economic activity in the private sector is declining for the second consecutive month. Companies are reducing production due to the ongoing drop in new orders. In the manufacturing sector, the decline in activity was particularly pronounced—marking the twenty-first consecutive month of declines.
Germany and France drag down the EU
The economic downturn in the eurozone primarily reflects the situation in its two largest economies: Germany and France. Both countries continue to experience a decline in economic activity, although the pace slightly weakened compared to the previous month. Other eurozone countries, however, recorded solid production growth, achieving the highest expansion rate in six months.
New export orders, including intra-eurozone trade, fell again, and at a faster rate than the total order book. "The decline in foreign orders was significant, though the weakest since August, as the rate of decline in both monitored sectors slowed compared to the previous month," the report reads.
The specter of inflation still haunts the EU. "The situation is quite gloomy"
In December, inflationary pressure markedly increased. This means production costs rose faster in four months, and the growth rate was close to the pre-pandemic average.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, recalled that at their December meeting, ECB representatives assured that they are closely monitoring inflation in the service sector, which remains significantly above overall inflation. The PMI indicators leave no illusions. Costs are rising faster and faster, marking the third consecutive month of increases. Sale prices have followed suit, indicating that the risk of rising inflation still persists.
The expert highlights that conditions in the manufacturing sector remain challenging, with production in December declining at the fastest rate this year and a continued drop in incoming orders. The inventory reduction cycle also shows no signs of halting. However, he points out some positive developments, noting that global PMI data for the industry suggested stabilizing operating conditions in November. This offers hope that the downward trend in the eurozone might not persist uninterrupted.
