Eurozone Private Sector Contracts At Slowest Pace In 6 Months

(RTTNews) - Eurozone private sector activity shrank at the slowest pace in six months in January but price pressures intensified in the service sector, which is likely to delay interest rate cuts, survey data from S&P Global revealed on Wednesday.

The flash HCOB composite output index rose to a six-month high of 47.9 from 47.6 in December. The expected score was 48.0.

Nonetheless, downturns persisted in both manufacturing and service sectors amid further falls in new business. Goods producers continued to lead the downturn.

The manufacturing Purchasing Managers' Index posted 46.6, up from 44.4 a month ago. The reading was seen at 44.8. Moreover, the reading was the highest in ten months.

At the same time, the services PMI slid to 48.4 from 48.8 in the previous month. The reading was forecast to rise to 49.0.

New business declined further in January. The overall contraction of new orders was the smallest recorded since last June, helping to stabilize employment levels and lift business optimism.

Manufacturing input costs continued to drop despite disruptions to shipping in the Red Sea causing supply chains to lengthen for the first time in a year.

Nonetheless, service sector cost growth accelerated, contributing to the steepest rise in prices charged for goods and services since last May.

"In the ongoing discourse surrounding the optimal timing of rate cuts by the ECB, the PMI price indicators align with the sentiments of the hawks," Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said.

"They are all about shouting "hold your horses" telling everyone to take it slow and not rush into early cuts," the economist added.

For the European Central Bank, enough worries about inflation not trending down to 2 percent quickly still remains, ING economist Bert Colijn said. A first cut before June seems unlikely, the economist noted.

The overall euro area private sector downturn continued to be led by France, where output fell for an eighth consecutive month. Germany's output also decreased at a steep and accelerated pace but the moderating downturn in manufacturing helped to offset deterioration in the service sector situation.

Germany's composite output index posted 47.1 in January, which was down from December's 47.4. The reading was forecast to improve to 47.8.

The index signaled the quickest decline since October. Further, the survey showed a convergence in performance between the services and manufacturing sub-sectors.

The services PMI slid to 47.6 from 49.3 in December. The expected score was 49.5. The factory PMI registered 45.4, which was the highest in nearly one year, and up from 43.3 in December. The reading was also above forecast of 43.7.

Elsewhere, France's private sector activity contracted the most in four months in January. The headline HCOB composite output index dropped to 44.2 from 44.8 in December. This was also below economists' forecast of 45.2.

The survey data showed sustained reductions in output at manufacturers and service providers. The manufacturing provided the strongest downward pull on total activity. At 43.2, the manufacturing PMI hit a four-month high and up from 42.1 in December. The score was forecast to rise moderately to 42.5.

At the same time, the services PMI slid to 45.0 from 45.7 a month ago. The expected reading was 46.0.