Euro area manufacturing growth continues to ease in December, PMI index drops to 51.4

The deceleration of euro area’s manufacturing economy’s growth, seen throughout much of 2018, carried on until the end of the year in December. The IHS Markit Eurozone Manufacturing PMI index dropped to 51.4 from November’s 51.8. Although extending the current run of expansion to five-and-a-half years, the latest PMI reading was the lowest seen since February 2016.

The data released today indicated divergent trends by market group. Growth in the consumer goods sector rose to a strong level, but operating conditions for intermediate goods producers deteriorated. The capital goods category saw marginal growth.

Again, the euro area’s ‘big-four’ economies recorded the lowest manufacturing PMI readings of all nations monitored in December. Latest data indicated that Italy continued to stay in contraction territory. Meanwhile, French PMI data indicated a first deterioration in operating conditions for 27 months. Manufacturing growth in Germany and Spain came in modest, easing to the weakest in about two-and-a-half years.

Netherlands recorded a rate of expansion rebound to its best in three months. Consistent with the recent trend, underlying the deceleration in overall growth was the further weakness in new orders. For the third straight month, total new work placed with euro area manufacturers dropped and, although modest, the contraction was the greatest in more than four years in the midst of reports of ongoing challenges in the autos industry plus wider political and economic instabilities. The survey for December also recorded a net fall in export trade, led by the sharpest fall for six years in Germany.

However, manufacturers in the euro area were able to record further growth of output. The modest rise in production, along with a decline in new order flows, meant that companies were able to make inroads into their work outstanding. Backlogs dropped for a fourth straight month and to the greatest degree since November 2014. Warehouse inventories also rose for third straight month.

In the meantime, job creation was sustained at the end of last year, although growth was little changed on November’s 26-month low. Manufacturers also indicated a growing degree of pessimism about the future.

Business sentiment about output in a year’s time was the lowest recorded by the survey since the end of 2012. Continued concerns regarding global trade, ongoing political uncertainties and tightening financial conditions all served to undermine sentiment in December.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bullish at -31.2884, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 37.6591. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex