The eurozone economy saw growth slacken to the weakest for almost a year in January, according to the first business survey reports for 2016. There was better news on the labour market – improved business confidence and a rise in backlogs of uncompleted work meant employment growth held steady at the four-and-a-half-year high seen in December. Firms also enjoyed cost savings due to the oil price decline, passing these on to customers.
The Markit Eurozone PMI® fell from 54.3 in December to 53.5 in January, according to the preliminary ‘flash’ estimate. Although the latest reading signalled a further solid upturn in business activity, the increase was the weakest since February of last year.
The ongoing upturn was led by the service sector, despite its pace of expansion hitting a 12-month low. Growth of manufacturing output meanwhile also faltered slightly to reach an 11-month low, though remained only marginally below the average seen last year.
Further order book growth in both sectors meant backlogs of uncompleted work showed the largest monthly increase for just over four-and-a-half years, prompting firms to continue boosting employment at a rate equal to the four-and-a-half year high seen at the end of 2015.
The service sector created new jobs at a pace beaten only once since 2008, and the manufacturing sector maintained the robust rate of hiring seen late last year.
The improved hiring trend could be linked to an upturn in business confidence, with expectations of future activity levels in the service sector hitting the highest since May 2011.
Firms also benefitted from lower oil prices, which proved a key contributor to average input costs across the two sectors holding steady for the first time in a year. Manufacturers’ input prices showed the second-largest decline since July 2009, while service sector input cost inflation slowed to an 11-month low.
Cost savings allowed firms to cut average prices charged to customers for both goods and services, with the overall drop in output prices the largest recorded for ten months.
German growth slowed to a three-month low, easing across both manufacturing and services, though the single currency area’s largest member state continued to act as a major source of growth for the region as a whole. Although dipping compared to December, the rate of job creation in Germany remained especially strong, and the second-highest seen for just over four years.
France, in contrast, saw business activity grow only modestly, improving only slightly on the near-stalling seen in December. A return to modest growth in the service sector was countered by a stagnation of manufacturing output, which failed to rise for the first time since last August. On a brighter note, employment in France saw the first rise for seven months.
The rest of the region also continued to enjoy strong output and employment growth, though at slightly slower rates of expansion than the peaks seen late last year.