EU HCOB Composite Flash PMI (Dec) 47.0 vs. Exp. 48.0 (Prev. 47.6)

• The likelihood of the Eurozone being in a recession since the third quarter remains notably high.


• Even though input prices increased at a modestly slower rate, companies were able to raise output prices even more than in previous months. This suggests that businesses were successful in transferring a portion of the cost increases to customers. The European Central Bank acknowledges this dynamic in its latest statement, noting that "domestic price pressures remain elevated."


• The service sector maintains a relatively more stable position compared to the manufacturing sector, contracting at a much slower rate. This is likely attributed to the concurrent reduction in consumer price inflation, coupled with an above-average surge in wages.

via HCOB

Reaction details (09:03)

• No real follow-through to Bunds or the EUR, given the action seen following the earlier French and German numbers.

Analysis details (09:22)

• The release adds to concerns of an end-2024 technical recession for the EZ as a whole, given increased pressures in the bloc's two largest economies. However, we are attentive to the potential for a larger-than-typical revision for the Final German metrics and potential read across into the EZ-wide figure, given the closure of the survey period crossing with the announcement from Germany's coalition that they have a deal for the 2024 budget that allows for the debt brake to be re-implemented (after being retroactively suspended for 2023).


• For the ECB, aside from recessionary concerns, the main focus resides on the inflation front and within this on the additional line from December's meeting around "strong growth in unit labour costs". For wages, the pan-EZ release notes of "an above-average surge in wages" in reference to the relatively stable position (but still contracting) of the Services sector. Furthermore, the German release notes of the influence of wage pressures as part of its commentary on December seeing the "fastest rise in businesses' input prices for seven months".


• Overall, the wage outlook will continue to be a point of concern for the ECB and could potentially be used as a point of justification against those who have criticised the inflation projections in December not being revised down by as much as the November inflation release would have perhaps implied, given the cut-off period for respondents was set to before the print.

15 Dec 2023 - 09:00- Fixed IncomeData- Source: Newswires