Weak PMI data add to signals that the Eurozone economy is likely in recession

The downturn in Eurozone’s business activity was broad-based, with both Germany and France experiencing a deterioration in activity across services and manufacturing sectors.

Official data from the last quarter showed that the euro zone economy contracted by 0.1%. The Purchasing Managers’ Index (PMI) for December suggests that economic activity has declined in every month of the current quarter, meeting the technical definition of a recession (two consecutive quarters of economic contraction).

The Eurozone Composite PMI fell to 47.0 in December, down from November’s 47.6. This marks the seventh consecutive month below the 50 threshold, indicating contraction and adding to signals that the economy is in recession.

The PMI for the dominant services industry in the euro zone fell to 48.1 from 48.7, below consensus for a rise to 49.0. The decline is attributed to decreased demand for services, with consumers feeling the impact of record-high borrowing costs in the currency union.

The manufacturing PMI remained unchanged at 44.2 in November but missed the forecast for 44.6. It has stayed below the 50 mark for the 18th consecutive month, indicating prolonged contraction in the manufacturing sector.

The downturn in Germany worsened, suggesting a recession in Europe’s largest economy at the end of the year. Germany’s economic outlook is dampened by weak demand from abroad, reduced government subsidies for the green transition, and high-interest rates impacting economic activity.

The European Central Bank trimmed its growth forecasts for 2023 and 2024, indicating concerns about the economic outlook and likely signaling a potential need for further monetary policy measures.

Te data points to a challenging economic environment in the euro zone, with a deepening downturn in business activity, particularly in Germany. The risk of a recession is evident, and the European Central Bank has adjusted its growth forecasts accordingly. Policymakers may need to consider additional measures to support economic recovery in the region.