The end of the year is shaping up to be a difficult one for the eurozone, as displayed by the flash PMI indicators for December. The composite index, fell by 0.6 points to 47, and remains below the threshold of 50 (in contraction territory) for the seventh month in a row. The employment index has not plummeted, but has been gradually declining since April, reaching 49.6 in December, its lowest level in three years. At 6.5% in October, the unemployment rate in the eurozone stabilised at a historically-low level, which is increasingly looking like a floor. We expect the jobless rate to rise slightly over the next few months, in line with current trends in the PMI indices. The unemployment rate for young people (under 25) has already risen by one percentage point in six months, to 14.9% in October.
According to our forecast, confirmed by our Nowcast, real GDP in the eurozone is set to contract by 0.1% q/q in Q4 (following -0.1% q/q in Q3). Retail sales grew 0.1% m/m in October, but the three-month moving average reached its lowest level in two and a half years. Industrial production (excluding construction) reached its lowest level in three years, contracting by 0.7% m/m in October (including -3.4% m/m for the production of machinery and equipment excluding transport).
Harmonised inflation in the eurozone fell by 0.5 pp to 2.4% y/y in November, due to greater deflation in energy and a slowdown in the rise in prices of industrial goods (excluding energy) and services. The fall in inflation was the sharpest in Italy (-1.1 pp to 0.8%), Germany (-1.3 pp to 3.0%) and Finland (-1.6 pp to 0.8%). The PMI indicator for input prices in services has stabilised, following a significant decline in the first half of the year, but remains at a historically high level (61.7). A squeeze on corporate margins, against a backdrop of rising unit labour costs, could put the brakes on activity. Nevertheless, at this stage, we still expect a gradual recovery in activity in 2024, with stronger growth from spring onwards, driven by falling inflation and an initial cut in policy rates in April, according to our forecasts.
Guillaume Derrien (article completed on 20/12/2023)
