Eurozone factories likely to outperform worst: PMI

LONDON — Last month’s slump in eurozone manufacturing activity eased again, suggesting the worst may be over.

The S&P Global Final Manufacturing Purchasing Managers Index (PMI) rose to a five-month high of 48.8 in January from 47.8 in December.

The index measuring output reflected in the Composite PMI on Friday, seen as a good guide to the health of the economy, hit 48.9, the highest since June and improved from 47.8 in December. . Nonetheless, it was the eighth consecutive sub-50 reading.

“Eurozone manufacturers continued to report lower production volumes and worsening order conditions in January, but saw a drop in production last October as we headed into the winter,” said Chris Williamson, chief business economist at S&P Global. “Things are much brighter than the lows we’ve seen.”

“Not only is the rate of production decline now easing for the third month in a row, but business optimism for the year ahead has surged over the past three months.”

An index that measures new orders is nearing breakeven, and factories are hiring at a faster pace. This was reflected in the future production index, which jumped from January’s 53.8 to an 11-month high of 58.2.

The Eurozone has managed to avoid recession as it grew in the last three months of 2022, with Gross Domestic Product (GDP) increasing by 0.1% in Q4.

This outperformance was despite very high energy costs and rising interest rates hitting the economy hard.

The PMI’s input price index fell last month, while the index that reflects output prices rose slightly, but is still below most of the past two years.

This is likely to be welcomed by policymakers at the European Central Bank, which has struggled to bring inflation forward, with official data late Wednesday showing inflation last month at 9.0%, well below target 2. approaching %.

A recent Reuters poll showed that these policymakers will announce a further 50 basis point hike in bank deposit rates on Thursday and another 50 basis points in March.