Business activity in the eurozone bounced back to strong growth
Inthelast quarter of2022the eurozoneekedout gr owt h, managing t o avoid a r ecession, as gr oss domest ic pr oduct expanded 0.1%, data from Eurostat shows
Business activity in the euro zone bounced back to growth in January, according to a survey which suggested the bloc’s economy might again escape a contraction this quarter and that the upturn may accelerate.
In the last quarter of 2022 the eurozone eked out growth, managing to avoid a recession, as gross domestic product expanded 0.1%, data from Eurostat showed on Tuesday, outperforming expectations in a Reuters poll for a 0.1% drop.
S&P Global’s Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, climbed to a seven-month high of 50.3 last month from 49.3 in December, just ahead of a 50.2 preliminary reading.
January was the first month the index has been above the 50 mark since June.
“A resumption of business output growth, even marginal, is welcome news and suggests that the euro zone could escape a recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“With price pressures down markedly in recent months, supply constraints easing and near-term energy market worries alleviated by subsidies, lower prices and a warm winter, business confidence has also lited higher, adding to hopes that the upturn will gather steam in the coming months,” he added.
While demand fell again the new business index moved much closer to the breakeven point and with firms increasing headcount optimism about the year ahead was at its highest since April. The future output index jumped to 60.4 from 55.5.
Activity in the bloc’s dominant services industry also bounced back to growth last month as consumers shrugged off the cost of living crisis and drove a modest upturn in demand.
The services PMI rose to 50.8 last month from 49.8, its first time above 50 since July.
Although the pace of input cost increases for services firms decelerated they lited their selling prices at a faster rate. The output prices index rose to 62.0 from 61.0 but this was still below levels seen over much of the past year.
On Thursday the European Central Bank added 50 basis points to its key interest rates to try to tame inflation running at 8.5% in January - more than four times its 2% goal - and explicitly signalled at least one more hike of the same magnitude in March.
“It remains too early to completely disregard recession risks. In particular, the impact of higher interest rates on economic growth has yet to be fully felt,” Williamson added.
German services sector activity rose in January. German services sector activity rose in January for the first time in seven months and companies showed increased optimism, a survey showed on Friday.
S&P Global’s final services Purchasing Managers’ Index (PMI) rose to 50.7 from 49.2 in December, going above the 50.0 threshold that separates growth from contraction.
“A slight rise in services activity in January indicates that the German economy has started the year on a more stable footing and reduces the chances of a technical recession,” said Phil Smith, economic associate director at S&P Global, though demand remains under pressure from high prices and tightening financial conditions.
Inflows of new business fell in January, extending the decline that began in June last year, although the rate of contraction slowed notably since December, the survey showed.
Regarding employment, January saw a slight acceleration in the rate of job creation across Germany’s service sector to the quickest since last July. According to Smith, this underscores the continued resilience of the German labour market.
The German composite PMI index, which comprises both the services and manufacturing sectors, rose to 49.9 in January from 49.0 in December, only a touch below the neutral level of 50.0.
Spanish services activity speeds up in January at fastest pace since July. Activity in the Spanish services sector sped up in January, on higher demand and renewed optimism, a survey showed on Friday, even though elevated inflation remained a concern for business people.
S&P Global’s Purchasing Managers’ Index (PMI) for Spain’s services sector, which accounts for around half of Spanish economic output, rose to 52.7 last month from 51.6 in December, the strongest reading since July, well above the 50.0 mark that separates growth from contraction.
“Expansions in activity and new business were sustained in January and, in fact, sharpened to six- and seven-month highs, respectively,” S&P Global’s economist Laura Denman said.
“The main driver in each of these upturns was an improvement in the overall demand environment which is certainly a positive sign for the future,” she added.
Even though company owners are more optimistic about the future and have hired more workers, high inflation remains a concern to most of them.