Europe’s top economies ended 2018 weaker than they started it, with business surveys pointing to slower growth and concerns about both the US-China trade war as well as Britain’s imminent departure from the European Union.
Key purchasing managers’ indexes from across the eurozone suggest momentum was still slipping away in December, when the European Central Bank took a long-awaited decision to shutter its €2.6tn asset purchase programme.
In Britain, where activity was a bit more resilient three months before it is due to leave the EU, business expectations for the year ahead wilted.
With turmoil in financial markets, and serious signs that manufacturing activity in the US as well as China slowed sharply at the end of 2018, the data yesterday was the latest to suggest the global economy is struggling.
“If you’re looking at exports in terms of GDP, actually the eurozone is the most exposed to the external economy. Even the fact that there is some slowdown, it remains quite muted in the US. But in China, the slowdown seems to be more severe,” said Peter Vanden Houte, chief eurozone economist at ING.
“This is having a big impact on European exports, something that will unfortunately continue for some months to come, given the fact that we don’t expect there will be a very rapid upturn in US and China.”
The Final Eurozone Composite Purchasing Managers’ Index (PMI) for December, a good guide to overall private sector growth, slipped to 51.1, the lowest in more than four years, from 52.7 in November. That was also down from a flash reading of 51.3.
The eurozone services PMI also fell to a four-year low of 51.2 from 53.4, hurt by slower new business growth.
Services and Composite PMIs for the two largest eurozone economies, Germany and France, also declined in December, coming below all forecasts in a Reuters poll.
And the Italy PMI suggested its services industry was barely growing after its economy contracted in the third quarter.
An already-deteriorating outlook for the eurozone economy dimmed further, too. The composite future output PMI also fell to a more than four-year low. That suggests the eurozone economy, which grew just 0.2% in the third quarter of 2018, its weakest pace in four years, may slow even further in coming months.
“The data are consistent with eurozone GDP rising by just under 0.3% in the fourth quarter, but with quarterly growth momentum slowing to 0.15% in December,” said Chris Williamson, chief business economist at IHS Markit.
In Britain, business conditions were not much better. The IHS Markit/CIPS UK Services PMI rose slightly more than the median forecast by economists polled by Reuters, to 51.2 in December from 50.4 in November.
But that was one of the weakest since the Brexit referendum in 2016 and, crucially, firms were increasingly anxious about the year ahead.
November and December marked the weakest two months for morale among services firms since March 2009, around the low point of Britain’s last recession.
Services account for about 80% of British economic output.
“Brexit was once again by far the most commonly cited cause of concern about the year ahead,” said IHS Markit’s Williamson. “The current low level of the PMI would normally be sufficiently weak to have triggered a cut in interest rates or other stimulus from the Bank of England in order to revive demand and avoid further downward pressure on future prices.”
Britain’s economy was on track for quarterly growth of around 0.1% during the fourth quarter, according to IHS Markit, well below the post-financial crisis average of 0.5%.
Shoppers walking on the streets in Milan. The Italy PMI suggested its services industry was barely growing after its economy contracted in the third quarter.
