Eurozone Economic Outlook Dims as Contraction Deepens (12.04.2024)

The Eurozone economy slipped back into contraction in November, according to the latest HCOB PMI survey data.

After stabilizing in October, business activity declined at the fastest pace since January, driven by a renewed drop in services output. Demand conditions across the Eurozone remained weak, with new private sector orders shrinking for the sixth month in a row, marking the sharpest decline of 2024. Notably, sales to non-domestic clients saw a significant reduction. Employment continued to fall, and business confidence dropped to its lowest point in 12 months. Meanwhile, input cost and output price inflation both rose to three-month highs.

Private Sector Activity Declines in November

Following a brief recovery to 50.0 in October, the seasonally adjusted HCOB Eurozone Composite PMI Output Index, comprising both the HCOB Manufacturing PMI and the HCOB Services PMI, fell back into contraction territory in November. With a reading of 48.3, the index signaled a renewed downturn in private sector activity across the region, marking the fastest output decline in ten months, though the decrease was relatively modest. The primary driver of the downturn was the services sector, which recorded its first output decline since the start of the year. Manufacturing output fell for the 20th consecutive month, the longest contraction streak in the survey's history.

Demand Weakens and Backlogs Shrink

Germany, France, and Italy all experienced contractions in business activity in November. However, Ireland and Spain saw expansions, with Ireland recording the strongest growth in output in over two years.

Economic activity was hampered by a continued reduction in demand for goods and services. New orders shrank for the sixth month while both manufacturers and service providers reported lower new business volumes, although factory sales saw a significantly stronger decline. Export performance weighed heavily on the Eurozone economy, as new orders from non-domestic clients fell faster than total sales.

With demand weakening, firms increasingly relied on backlogs to maintain activity levels, leading to a decrease in outstanding orders. This marked the 20th month of decline in work-in-hand. The rate of backlog reduction remained high, similar to September and October, and was among the fastest in 2024.

Job Cuts Persist as Inflationary Pressures Rise

Regarding employment, the survey revealed further job cuts in the Eurozone, though the reduction was marginal, ranking as the second-fastest since December 2020 (after October). The job decline was entirely driven by the manufacturing sector, while the service sector saw a slight increase in job creation.

Looking ahead, Eurozone companies remained cautiously optimistic about the next 12 months, but sentiment declined to its lowest level in a year, well below the long-term average. Lastly, inflationary pressures increased in November. Both input costs and output prices rose for the second consecutive month, marking the sharpest increase since August. However, price hikes were observed only in the services sector, while goods producers reported cost reductions and price discounts.

Source: SP Global