Eurozone economy likely entered recession last year

Eurozone factories ended 2023 on the back foot, with activity contracting in December for an 18th straight month, according to a survey which gave scant signs of any imminent strong bounceback in an economy likely in recession.

HCOB’s final eurozone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, did nudge up to 44.4 in December from November’s 44.2 but remained firmly below the 50 mark separating growth in activity from contraction.

A preliminary estimate was for no change from November.

An index measuring output, which feeds into a composite PMI due on Thursday and seen as a good gauge of economic health, dipped to 44.4 from November’s final reading of 44.6 but was ahead of the 44.1 flash estimate.

The pessimistic trend strongly pointed to a contraction in eurozone GDP last quarter, Hamburg Commercial Bank’s chief economist Cyrus de la Rubia said. The bloc’s economy contracted 0.1 per cent in the third quarter, official data has shown, so a second quarter of contraction would meet the definition of recession.

“Amid a relentless slump in the manufacturing sector of the eurozone, the HCOB PMI has shown little improvement compared to November. It paints a bleak picture for the eurozone and would mean that the eurozone entered a recession in the third quarter,” de la Rubia said.

The 20-country eurozone will endure a short and shallow winter recession, an early December Reuters poll found.

An ongoing decline in new orders did ease moderately last month but remained below 50, as it was for all of 2023. The sub-index rose to 42.0 from 41.5.

“The sluggishness of new orders echoes the gloom, retreating almost as swiftly as the previous month,” added de la Rubia.

A chunk of December’s activity was generated by completing old orders, the backlogs of work index showed, and suggesting that manufacturers don’t expect an imminent turnaround factories cut headcount for a seventh consecutive month.