Eurozone business activity still subdued, points to recession - PMI

Business activity in the eurozone continued to contract at the end of last year, with survey data published on Thursday indicating the single currency bloc went into recession.

The eurozone composite purchasing managers index (PMI) - a good measure of economic health - was revised upwards to 47.6 from a flash estimate of 47 to match the final reading for November.

Meanwhile the services PMI edged ahead to 48.8 from November's 48.7, a five-month high but still below the 50 mark separating contraction from expansion.

"Demand for euro area goods and services continued to weaken while employment levels fell again, just the second time this has been the case in almost three years," S&P said.

However, businesses’ growth expectations improved, recovering further from last September’s recent low to reach their strongest for seven months, although subdued by historical standards.

Hamburg Commercial Bank chief economist Cyrus de la Rubia said the service sector across the eurozone was experiencing a slight contraction, much like it did in November, "while job numbers are still ticking up, albeit marginally".

"It's not quite recession territory yet for services, but the vibe is far from growth-oriented. There are a lack of clear signals indicating an imminent return to robust expansion."

“The composite PMI, is sounding the recession alarm for the eurozone, though. Adding weight to this observation is our GDP Nowcast model, which forecasts a back-to-back contraction in the region's output for the fourth quarter."

“In the face of a stagnant services sector, it's impressive that service providers are successfully transferring a portion of their growing input costs to customers. Sales prices, in fact, saw a noticeable increase in December, and at a slightly elevated pace. This will go against those members of the European Central Bank who are inclined to cut rates already in March. We expect a first rate cut in June."

“Signals of future activity are not painting an optimistic picture. New business opportunities continued to contract at a rate similar to previous months. Although there is a slight uptick in expectations for activity in the next 12 months, the index still lingers well below the long-term average."

Reporting by Frank Prenesti for Sharecast.com