Euro zone business growth almost stalled in January: PMI

February 5, 2019

By Jonathan and Cable

LONDON, Feb 5 (Reuters) – Euro zone businesses started the year by expanding at their weakest rate since mid-2013 as a manufacturing slowdown spread to services, with demand declining for the first in over four years, a survey showed.

Forward-looking indicators in the downbeat survey suggest there will not be any turnaround soon, and will make disappointing reading for policymakers at the European Central Bank, who recently ended their more than 2.6 trillion euro asset purchase program.

IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), considered a good measure of overall economic health, dipped to 51.0 from December’s 51.1, its lowest reading since July 2013.

While that was higher than an earlier flash reading of 50.7 it was barely above the 50 mark separating growth from contraction.

“The euro zone has started 2019 on flat note, with growth close to stagnation amid falling demand for goods and services,” said Chris Williamson, chief business economist at IHS Markit.

“What started as a manufacturing and export-led slowdown has shown increasing signs of infecting the service sector.”

Also of concern, earlier figures showed that while German activity accelerated, it looked tenuous, and that France’s composite PMI sank to 48.2, its lowest in over four years.

A PMI for the bloc’s dominant services industry held steady at December’s 51.2, which was its lowest reading since November 2014. Growth in factory activity was minimal in January, a sister survey showed on Friday.

Williamson said the composite PMI pointed to first quarter economic growth of just 0.1 percent, much slower than the 0.4 percent predicted in a Reuters poll last month.

Worryingly, some of that scant growth came from firms running down backlogs for a second month as demand fell. An overall new business index sank to 49.5 from 50.7, its first time sub-50 since November 2014.

In further signs of a slowdown, services firms increased headcount at the slowest rate since late 2016. The employment index dropped to 52.3 from 53.6 in December.

“Employment growth is now also being affected by a growing reticence to expand capacity,” Williamson said.

(Reporting by Jonathan Cable; Editing by Catherine Evans;; +44 20 7542 4688; Reuters Messaging: