Euro zone business recovery ends year on a high - PMI

Monday 16 December 2013 18.16
Despite economic improvements, concerns persist that euro zone recovery is 'lopsided'
Despite economic improvements, concerns persist that euro zone recovery is 'lopsided'

The fragile recovery in the euro zone's private sector is ending the year on a high as new orders flood in, but the chasm between the bloc's two biggest economies has widened, surveys showed today.

Markit's flash euro zone Composite Purchasing Managers' Index (PMI), which gauges business activity across thousands of companies, rose to 52.1 in December from 51.7 last month.

It was the second-highest reading since mid-2011 and beat the median forecast in a Reuters poll for 51.9. The index has been above the 50 mark that denotes growth for all the second half.

"It's really encouraging to see the increase in the overall rate of growth. It's a reassuring signal that the recovery is still on track. We are not losing momentum," said Chris Williamson, chief economist at Markit.

But it added that there are concerns the recovery is "lopsided".

Once again the surveys highlighted a diverging path between the bloc's two biggest economies of Germany and France.

Earlier manufacturing data from Germany showed factories had their best month since June 2011, but activity among French firms sank to a seven-month low.

But Markit said the data suggested the bloc's economy as a whole, which escaped from its longest-ever recession earlier this year, would grow around 0.2% this quarter, in line with a Reuters poll published last week. 

New orders rose for the fifth month - the sub-index rose to 52.2 from 51.8 in November - suggesting the recovery should continue into 2014.

Markit's euro zone Manufacturing PMI rose to 52.7 in December from November's 51.6. That was its best showing in 31 months and smashed expectations for 51.9. It was higher than all forecasts in a Reuters poll of 35 economists.

A gauge measuring manufacturing output soared to 54.8 from 53.1, a level not seen in more than two and a half years.

As new orders for manufactured goods grew, factories were able to build up a backlog of work at the fastest pace since April 2011, with the sub-index coming in at 52.8, well ahead of November's 50.9.

"This is very much a manufacturing-led recovery. It's reflective of companies, especially in Germany, being more competitive and taking advantage of the upturn in global trade," Markit noted.

The PMI for the services sector, which makes up the bulk of the euro zone's economy, dipped to 51 from 51.2, confounding expectations for a rise to 51.5.

Services firms were forced to cut prices again last month, as they have done for the last two years, to drum up business. The output price index rose to 48.6 from 47.9 but was still well below the break-even mark.

Official data tomorrow is expected to confirm prices rose across the euro zone by just 0.9% in November - well below the European Central Bank's 2% target ceiling.

The ECB surprised markets last month by chopping its main refinancing rate to a record low of 0.25% and while it is not expected to cut them again it will probably flood markets with another round of cheap cash early next year.