Recovery In Eurozone Loses Momentum In January

Sponsored Links

Eurozone recovery lost its momentum in January as growth in the private sector slowed, results of survey showed Thursday.

The Flash Eurozone Composite Output Index, which is a weighted average of the manufacturing and services purchasing managers' indexes, stood at 53.6 in January, down from 54.2 in December, according to a survey conducted by Markit Economics. Economists had expected the composite index to remain unchanged at 54.2

The index fell for the first time since bottoming out in February of last year. The reading stayed above the no-change 50 mark for sixth straight month, suggesting expansion in the private sector. However, the decline in the reading from December signals a modest easing in the growth rate.

"A slight easing in the rate of growth needs to be put in the context of the adverse weather that affected many businesses during the month," Chris Williamson, chief economist at Markit said. "The rate of growth was also in line with the average seen in the final three months of last year, which was the strongest quarter for two years."

The manufacturing PMI climbed to a 22-month high of 52 in January from 51.6. The services PMI, on the other hand, dropped to 52.3 from 53.6. While, the manufacturing PMI stood slightly above the consensus forecast of 51.9, the indicator for the service sector came in weaker than the expected reading of 53.8.

Commenting on the data, Capital Economics' Jennifer McKeown said the risks to the forecast of a moderate annual growth in Eurozone GDP of around 1.5% in 2010 seem to be shifting to the downside. The economist viewed the decline in the service sector index as a particularly worrying indication that the much-needed domestic recovery has yet to materialize.

The rate of growth in manufacturing activity in January accelerated at its the fastest pace since August 2007, while it eased in the service sector. Manufacturers reported the biggest growth in new orders since July 2007. By contrast, new order growth in services slowed in January.

According to Colin Ellis, an economist at Daiwa Capital Markets Europe, the PMI figures suggests that economic recovery is likely to prove bumpy and protracted. If the recovery disappoints in the months ahead, the economist expects the refi rate to be held at 1% throughout 2010.

The survey noted that manufacturing continued to report a steeper pace of job shedding than services. Further, inventory levels continued to fall in manufacturing, but at slower rates than in December. Prices charged in both manufacturing and services decreased in January, with the latter seeing the steeper drop.

Earlier this month, the European Central Bank had kept its key interest rate unchanged at a record low for the eighth consecutive month. The interest rate now stands at 1%. The last change in the rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%.

According to Commerzbank analyst Christoph Weil, the European central bank will leave the interest rates unchanged for the time being with the dampened outlook for economic growth. "Only at the end of the year, when it becomes clear that the economy is growing at normal rates again and under-utilization of the production potential is no longer rising, will the ECB start to hike rates."

The Flash Germany Composite Output Index dropped to 54.2 in January from 54.3 in December. The manufacturing PMI climbed to 53.4 from 52.7. The expected reading was 52.9. By contrast, the services PMI unexpectedly dropped to 51.2 from 52.7. Economists were expecting the index to rise to 53.

The Markit/CDAF Flash composite index for France stood at a 4-month low of 58.1 in January compared to a reading of 59.2 in December. The manufacturing index remained unchanged at 54.7, while the services PMI fell to 57 from December's 58.7.

Eurozone recovery lost its momentum in January as growth in the private sector slowed, results of survey showed Thursday. (Market News Provided by RTTNews)