The euro area economy edged closer to stagnation at the start of 2019, with businesses reporting the weakest rise in output for five-and-a-half years and the first fall in demand for over four years.
The IHS Markit Eurozone Composite PMI® fell to 50.7 in January from 51.1 in December, its lowest since July 2013, according to the preliminary ‘flash’ reading. The flash estimate is typically based on approximately 85% of the final number of replies received each month. The latest reading indicated only marginal growth of business output, contrasting markedly with the strong rates of expansion seen this time last year.
Both manufacturing and services saw growth slow closer to stagnation. The factory sector reported the weakest expansion since the current production upturn began in July 2013, while the service sector expansion was the smallest since August 2013. Inflows of new work fell compared to December, registering the first such decline since November 2014 and signalling the largest drop in demand for goods and services since June 2013.
New orders for goods fell for a fourth successive month, declining at a rate not seen since April 2013, while inflows of new business in the service sector slipped into decline for the first time since July 2013.
Deteriorating exports contributed to the disappointing order book picture. Exports fell for a fourth successive month, dropping at the steepest rate since comparable data for combined manufacturing and services exports were first available just over four years ago. Services saw exports decline at an increased rate.
Outstanding work decreased for the second consecutive month, worsening at the sharpest pace since December 2014. Falling backlogs were commonly caused by companies having to eat into back-orders in order to support current output growth amid reduced inflows of new business.
The decline in order books was a key factor behind a reduction in the pace of overall job creation to the lowest since September 2016. Jobs growth has now cooled for five months in a row. Employment growth waned in both sectors, though services saw an especially marked slowdown.