Euro zone recession may not be as deep as expected -PMI

LONDON  – Euro zone business activity contracted less than initially thought at the end of last year as price pressures eased, according to a survey which suggested the bloc’s recession may not be as deep as expected.

S&P Global’s final composite Purchasing Managers’ Index (PMI) for the euro zone, seen as a good gauge of economic health, rose to 49.3 in December from November’s 47.8, above a preliminary estimate of 48.8.

While the index has been below the 50 mark separating growth from contraction since July, December was a five-month high. The final data was compiled earlier than usual last month due to the holiday season.

“The euro zone economy continued to deteriorate in December, but the strength of the downturn moderated for a second successive month, tentatively pointing to a contraction in the economy that may be milder than was initially anticipated,” said Joe Hayes, senior economist at S&P Global Market Intelligence.

“Nevertheless, there is little evidence across the survey results to suggest the euro zone economy may return to meaningful and stable growth any time soon.”

A December Reuters poll predicted the region’s economy contracted 0.3 percent last quarter and would do so by 0.4 percent this quarter.

Overall demand declined for a sixth straight month, albeit at a shallower pace than initially thought. The PMI new business index bounced to 47.0 from 45.8, comfortably above the 46.5 flash estimate.

A PMI covering the bloc’s dominant services industry climbed to within a whisker of the breakeven point, registering 49.8 compared to November’s 48.5. The preliminary estimate was 49.1.

Price pressures in the sector eased last month although did remain elevated. The output prices index dropped to 61.0 from 62.3 and its lowest since August.

That will likely be welcomed by policymakers at the European Central Bank who have been tightening monetary policy to try and contain inflation running considerably above their target.