The eurozone economy made a disappointing start to 2016. January saw the rate of output growth ease to one of the weakest over the past year. Slower expansions were signalled in both the manufacturing and service sectors, while national PMI data saw growth ease in Germany and Italy. France remained
close to stagnation.
The final Markit Eurozone PMI® Composite Output Index fell to a four-month low of 53.6 in January, down from 54.3 in December and just above the earlier flash estimate of 53.5. Nonetheless, the headline index has remained above the neutral 50.0 mark for 31 consecutive months.
There remained some mildly positive signs for the economic outlook, as rising levels of employment and backlogs of work suggested that the upturn would continue during the coming months. Job creation was recorded for the fifteenth month in a row, with the pace of increase only slightly down from December’s four-and-a-half year record. Work-in-hand volumes, meanwhile, accumulated at one of the quickest rates since mid-2011.
January saw an intensification of price deflationary pressures. Average prices charged for goods and services dropped at the fastest rate since last March. On the cost side, input prices fell for the first time in a year. A substantial drop in manufacturers’ purchase prices (the steepest since January 2015) offset a further increase in service sector costs.
Faster output and new order growth were also signalled in Spain, encouraging companies there to raise employment at a faster rate. Slower increases in economic activity were registered in Germany (three-month low) and Italy (four-month low). In both cases this filtered through to the labour market in the form of weaker jobs growth.
The French economy remained near stagnation during January, with negligible expansions of output seen at manufacturers and service providers alike. A similar trend was also seen in both sectors with regards to employment.
January saw business activity in the eurozone service sector rise at the slowest pace for a year. This was highlighted by the Eurozone Services Business Activity Index posting 53.6, down from 54.2 in December and in line with the earlier flash estimate. The latest reading was slightly above the long-run series average (53.0), however.
With France edging back above the stagnation mark, all of the nations covered by the survey were in expansion territory during January. Only Ireland recorded a stronger rate of increase, however, as growth slowed in Germany (three-month low), Italy (two-month low) and Spain (13-month low).
The level of new business at euro area service providers also rose at a moderately slower pace at the start of the year. However, there was brighter news regarding the outlook for the sector. Business confidence† rose to a 56-month high, while backlogs of work and employment increased.
Jobs growth was registered for the fifteenth successive month in January, with increases in payroll numbers registered across all of the nations covered. Rates of expansion ranged from a strong and accelerated rise in Ireland, to a negligible gain in France. Germany, Italy and Spain all saw solid job creation.
Average prices charged by service providers decreased moderately for the fourth month in a row in January, weighed down by discounting among businesses in France, Italy and Spain. In contrast, service providers in Germany and Ireland raised their charges further.
Input price inflation meanwhile eased to the slowest for 11 months amid falling commodity prices. Costs increased at faster rates in Spain and Ireland, whereas input price inflation eased in Germany, France and Italy.