The PMI reading for the Eurozone in December 2023 was 44.4 points, indicating a slight increase compared to the November result. December’s figures were the highest in seven months.
Nevertheless, the last month of the year brought a cold shower for optimists after the index increased by 1.1 points in November. Therefore, there is no question of dynamic reflection. Moreover, the PMI index for the Eurozone industry still remains clearly below the neutral point (50 points), indicating a contraction in the sector.
An analysis of the sub-indices making up the PMI also showed a decline in production and new orders. Production slowed down particularly strongly in France, which recorded one of the sharpest declines in the index. This decline was largely due to lower levels of new orders. As analysts from S&P Global emphasise, export orders in the Eurozone have been falling for two years.
However, low demand for new products allowed companies to make up for delays in fulfilling past orders. Companies are also getting rid of inventory accumulated during the pandemic and alleviating supply chain congestion. In December, the decline in these stocks was one of the deepest in history.
A drop in prices is visible as well. Low demand and falling inflation, translating into reduced prices of semi-finished products, mean that producers can afford to reduce final prices to stimulate sales. However, the price decline for semi-finished products and inputs was the lowest in eight months, and for final products, it was the lowest in seven months.
A worrying trend in the Eurozone is the falling level of employment in Eurozone countries. The number of people employed in the manufacturing sector has been falling since June 2023. Nevertheless, surveyed representatives of the industrial sector in the Eurozone are quite optimistic about the future, with expectations regarding the future economic situation in the sector being the best in eight months.
Just like a month ago, Greece remains the only Eurozone country where the manufacturing sector is experiencing expansion. The index reading for this country was 51.3 points, the highest in four months, and close to the 50-point mark. Ireland also had a reading of 48.9 points, although there was a decrease compared to November.
France recorded the lowest level of the index in 3.5 years, with the December reading at 42.1 points, 0.5 points less than a month earlier. Among the large European economies, Spain and Italy are also far from returning to the growth path, with the index in these countries at 46.2 and 45.3 points, respectively.
Bittersweet news comes from Germany with another improvement in the index for German industry. The indicator was 43.3 points, compared to 42.6 points in November. This marks the fifth month of growth in a row, although it is still below the neutral level threshold (44 points), indicating industry shrinkage.
As analysts from S&P Global Market Intelligence emphasise, “the German industrial sector ended 2023 clearly shrinking, but many signals indicate that the worst is already behind it.”
Although current production and employment declined in December, indicators for the future look more positive. New orders fell again, but at the slowest pace since April. Entrepreneurs’ expectations for the future are positive for the first time in eight months.
Nevertheless, the scale of the decline in employment in the industry may be worrying. It was most pronounced since October 2020, although it should be added that it mainly concerned the failure to fill positions left by departing people, and not mass layoffs.
Dr. Cyrus de la Rubia, an economist at Hamburg Commercial Bank, described the situation in German industry quite graphically, comparing it to a wanderer who got lost in the mountains and accidentally descended into the valley. “We see progress in finding the right path out of the valley, but we still don’t know how close that path is,” said Dr Rubia.
Both in Germany and in other Eurozone countries, there is a decline in orders for means of production and semi-finished products. This translates into a drop in their prices and shortened delivery times.
It is worth emphasizing, however, that this situation may change in the January reading published later this month. December brought a new crisis around the Red Sea and the Suez Canal. The activity of Yemen’s Houthi fighters has led many shipping companies to choose to sail to Europe around Africa, which will increase delivery times and costs.
Trevor Balchin, economic director of S&P Global Market Intelligence, despite the slowdown, is optimistic about December results:
“The latest data should not distract too much from recent growth momentum, with the PMI up more than four points from its low in August 2023 and the future output index among the highest in the last two years,” said Balchin.
Entrepreneurs’ forecasts for the next 12 months regarding production remain positive – companies inform about planned new products and production capacities. Although the mood has decreased compared to November, it is still among the most positive in the last two years.