By Indradip Ghosh
BENGALURU (Reuters) – Euro zone business activity contracted at the slowest pace in four months in December, suggesting a likely recession ahead will be shallower than previously thought, a survey showed on Friday.
S&P Global’s Preliminary Composite Purchasing Managers’ Index (PMI), considered a good indicator of overall economic health, rose from 47.8 in November to 48.8 this month, above the forecast in a Reuters poll. from 48.0.
But December was the sixth month below the 50 mark that separates growth from contraction, the longest streak since June 2013.
“While the further drop in business activity in December signals a strong possibility of a recession, the survey also indicates that any downturn will be milder than was thought a few months ago,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. .
Despite growing risks of an economic downturn, the European Central Bank hiked its deposit rate on Thursday to 2% from 1.5% and suggested more was to come as inflation is still well above its 2% target. .
Higher interest rates coupled with concerns about the cost of living mean that demand is likely to weaken further. A Reuters poll showed the economy will contract this quarter and the next, meeting the technical definition of a recession.
However, new orders in the private sector fell at a slower pace and the rise in prices – driven by rising energy costs in the wake of the Russia-Ukraine war – eased further. While input prices rose at their slowest pace since May 2021, the PMI sub-index that tracks output prices was at its lowest level in a year.
Block services activity contracted again, but the Index rose to 49.1 – the highest since August. A Reuters poll showed the preliminary services PMI expected to repeat last month’s rate of 48.5. The preliminary manufacturing PMI rose to 47.8 from 47.1 in November.
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