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PATRIS Macro - Eurozone composite PMI reached in December the lowest level since November 2014

4 Jan 2019

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Bottom-Line: The final reading for the Euro Area December’s composite PMI showed a 0.2 downward revision to 51.1, reflecting a similar revision on the services PMI. Therefore, the composite PMI fell by 1.6 points in December, and reached its lowest level since November 2014 (in part reflecting lower activity in France due to the “gilets jaunes” movement). 4Q18 average stood at 52.3 (vs. 54.3 in 3Q18) suggesting that the economy probably recorded a weak pace of expansion at the end of last year.

The details for the Eurozone services survey showed the new business sub-index at the weakest level for four years. Outstanding business increased at the weakest pace since September 2016. On the prices front, higher labour costs remained a key source of inflation. Hence, input price inflation remained high, despite evidence of lower fuel and energy costs. Output prices continued to increase at a solid pace, mainly reflecting Germany and Ireland. Sentiment in the sector fell to the lowest recorded by the survey for four years, reflecting weaker confidence in France and Germany.

Details:

Spain: Markit services PMI was stable at 54.0 in December (vs. consensus 53.7). The composite PMI for the Spanish private sector declined by 0.5 points to 53.4 (vs. consensus 53.7). 4Q18 average stood at 53.7 (vs. an average of 54.9 for the first 9 months of last year), suggesting a solid pace of expansion for the Spanish economy at the end of 2018.

Details in the services survey showed that incoming new business continued to rise, although mainly centred on the domestic market, given that sales to foreign clients declined for a fifth month in a row, with some reports that French protests had a negative impact on demand. The employment sub-index rose to the highest level since August. The input prices sub-index reached a 3-month low. Nevertheless, companies continue to report that wages had increased and that suppliers were increasing their charges. Competitive pressures continue to restrict pricing power. Expectations for activity in 12months’ time strengthened to the highest since July.

Italy: Markit/ADACI services PMI rose by 0.2 points in December to 50.5 (vs. consensus 50.1). The composite PMI increased by 0.7 points to 50.0 (vs. consensus 49.3). Despite the increase recorded in December, the 4Q18 average for the composite PMI stood at 49.5, the first reading below 50 since 2Q13.

New orders growth in services was the fastest in three months. However, new export sales amongst Italian service providers contracted for the sixth consecutive month. Business confidence reached an eight-month high. Selling prices fell in December, with the sub-index at the lowest level in 26 months. Input cost inflation also weakened to the slowest in 9 months.

Other countries: In Germany, the composite PMI was revised lower by 0.6 points from the flash reading, which brought the monthly change to a 0.7 decline. In France, the composite PMI was also revised down by 0.6 points to 48.7 (a 5.5-point decline in December). In Ireland, the composite PMI fell by 1.1 points to 55.5 in December, the lowest reading since March 2018.

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