The European economy is in a recession, basically, and price pressures, although no longer acute, are persistent.
That’s an unfortunate conjuncture. Preliminary PMI data for January released Wednesday confirmed that the situation in Europe remains tenuous as the ECB ponders the right time for rate cuts.
At 47.9, S&P Global’s composite gauge for the region rose to a six-month high, but it’s still in contraction territory. The last expansionary print was in May.
The color accompanying the release noted an improvement in the rate of new orders contraction. That “help[ed] stabilize employment levels” and pushed up business optimism, which now sits at its best levels in eight months.
Still, sub-50 readings for both the services and manufacturing gauges point to stagnation, at best. “The eurozone economy continues to trend around 0% growth and there are no signs of any imminent recovery,” ING’s Bert Colijn said Wednesday.
As Colijn pointed out, the composite gauges for both Germany and France slipped in January on weakness in the services sector (manufacturing was weak too, but the country-specific factory gauges improved from December, even as they remain squarely in contraction). That means the improvement in the euro-area gauge was down to smaller economies.
In Germany, “there were continued signs of broad-based weakness in demand,” S&P Global said. In France, the economy “began the new year with another marked month-on-month reduction in private sector business activity.”
You get the idea. Any antonym for “vibrant” will work to describe the state of Europe’s largest economies.
Unfortunately, lackluster growth isn’t translating into incremental price softening on the services side anymore.
“[O]utput prices have risen at a robust rate and at a similar speed to that seen in December, a deviation from the norm in a country potentially facing a prolonged recession,” Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank which compiles the PMIs with S&P Global, said, of the German services sector.
“The ECB won’t start cutting rates in the next few months amid surging wages,” Norman Liebke, another economist at the bank, remarked. “PMIs for input and output prices remain clearly above the 50 mark in France, hinting at stubborn euro area consumer price inflation.”
De la Rubia drove home the point while editorializing around the regional PMIs. “Companies have faced higher input prices and were able to pass them through to their customers,” he said. “As a result, price increases are very much at odds with the recessionary environment.”
