Eurozone activity downturn easing as services recover - PMI

22nd Feb 2024 09:35

(Sharecast News) - The downturn in the eurozone services sector showed signs of easing, although manufacturing was still in the doldrums, according to a widely-watched survey published on Thursday.

Business activity in the euro area fell at the slowest rate for eight months in February, according to provisional readings from the Hamburg Commercial Bank purchasing managers index (PMI).

The flash eurozone composite output index came in at 48.9, up from January's 47.9), an eight-month high. In the services sector the PMI for business activity hit the critical 50 mark, from 48.4 in the previous month, and its best reading for seven months.

A mark about 50 indicates expansion, anything below is a contraction. In manufacturing, the index slipped to 46.1 from 46.6, a two-month low.

"There is a glimmer of hope as the eurozone inches towards recovery. This is particularly noticeable in the services sector," said Norman Liebke, economist at HCOB.

"The latest PMI print gives hope for a recovery in the eurozone, which is why we are sticking to our annual HCOB forecast of 0.8% for 2024. There is also a certain optimism in the latest employment figures, which rose at a faster pace than in the previous month."

"Germany is acting as a brake on eurozone growth. While France is recovering more strongly in both the services and manufacturing sectors, Germany is lagging behind. The services export sector in particular boosted France in February, while it slowed down Germany."

"One possible explanation for this could be increased tourism activity, which benefits France more than Germany."

"The manufacturing sector is the drag on the European economy. That is clearly demonstrated by the sharp decline in production and the drag on new orders. Accordingly, the companies surveyed have further reduced their workforce and the business outlook for the coming 12 months remains below the long-term average, which tends to reflect pessimism."

"The latest HCOB PMI figures are likely to disappoint the ECB. Output prices have increased at a faster pace for the fourth month in a row. This is entirely due to the labour-intensive services sector, which continues to struggle with rising wages."

"Our forecast remains that the ECB will cut interest rates for the first time in June."

Reporting by Frank Prenesti for Sharecast.com