Eurozone December flash services PMI 48.1 vs 49.0 expected

<ul><li>Prior 48.7</li><li>Manufacturing PMI 44.2 vs 44.6 expected</li><li>Prior 44.2</li><li>Composite PMI 47.0 vs 48.0 expected</li><li>Prior 47.6</li></ul><p>Overall business activity declined further in the euro area in December, reaffirming that the region is in recession mode to wrap up the year. New business inflows remain weak amid subdued demand conditions, which remains one of the biggest problems in the economy. The good news at least is that there is a slowing in the rate of increase in input costs (largely from manufacturing as services input costs remain elevated) but average selling prices did rise at an accelerated pace on the month. HCOB notes that:</p><p>“Once again, the figures paint a disheartening picture as the Eurozone economy fails to display any distinct signs of
recovery. On the contrary, it has contracted for six straight months. The likelihood of the Eurozone being in a recession since
the third quarter remains notably high.
</p><p>The service sector maintains a relatively more stable position compared to the manufacturing sector, contracting at a much
slower rate. This is likely attributed to the concurrent reduction in consumer price inflation, coupled with an above-average
surge in wages. These factors contribute to bolstering the purchasing power of private households, a crucial element for the
more consumer-driven service sector. However, despite these elements, there are no indications of the service sector
breaking free from its unsatisfactory trajectory. Quite the opposite, new business is diminishing at an accelerated pace, as is
the backlog of work.
</p><p>Employment has teetered between marginal increases and decreases over the past five months, essentially holding steady.
This stability is reassuring for individuals, providing them with greater certainty about their future income. However, the
coexistence of declining output and unchanged employment levels signals an exacerbation of productivity challenges.
Consequently, the anticipated streamlining effect, typical of past recessions providing the basis for productivity increases,
seems unlikely to materialize this time. This factor contributes to our expectation of only modest economic growth in the
Eurozone, forecasted at 0.8% for the upcoming year, following 0.5% growth this year.
</p><p>Even though input prices increased at a modestly slower rate, companies were able to raise output prices even more than in
previous months. This suggests that businesses were successful in transferring a portion of the cost increases to customers. The European Central Bank acknowledges this dynamic in its latest statement, noting that "domestic price pressures remain
elevated."
</p><p>A closer look at the top two economies in the Eurozone reveals a positive comparison for Germany in relation to France,
particularly within the service sector. Germany is experiencing a much slower contraction in this area, while the downward
trend of the index is more pronounced in France. Similar dynamics are observed in manufacturing, where the pace of output
decline is faster in France than in Germany. Obviously, there's no room for "Schadenfreude" on the German side, not only
for general reasons but also because France stands as the second most significant buyer of German export goods. In
addition, the positive comparison does not change the fact that Germany’s economy is in a bad shape, in absolute terms.”</p>

This article was written by Justin Low at www.forexlive.com.