Eurozone business activity falls to a 4-year low

• The manufacturing PMI fell to a 33-month low of 51.4 while services PMI fell to a 49-month low of 51.4 in December.
• New business inflows almost stalled, job creation slipped to a two-year low and business optimism deteriorated in December as trade war take their toll.
• The business activity report contrast with relative optimism of the ECB that has just ended the asset purchasing program.
• The 2019 ECB rate hike expectations of money market dealers dropped from 75% to 60% after the report.

The business activity in the Eurozone fell to the lowest level in 49 months in December with composite PMI falling to 51.3, down from 52.7 in November. The manufacturing PMI fell to a 33-month low of 51.4 in December while services PMI fell to a 49-month low of 51.4.

Business activity decelerated sharply at the end of the year and approached further to 50.0 division line separating the economic expansion from the economic contraction.

The slowdown of the economic activity in the Eurozone was broad-based with new business inflows almost stalling, job creation slipping to a two-year low and business optimism deteriorating. 

The sharp deceleration in business activity indicated that while the fourth quarter GDP in the Eurozone might still rise at about 0.3% Q/Q, December alone suggests slowdown to 0.1% alone. 

“Forward-looking indicators such as new orders and future expectations remaining subdued suggest that demand growth is stalling, adding to downside risks to the immediate outlook,” Chris Williamson, chief business economist and the author of the PMI report noted. 

The deceleration in business activity is reported just one day after the ECB said it will end the asset purchasing program while downgrading its growth outlook while the ECB President Mario Draghi sounded relatively confident about the resilience of the Eurozone growth in light of deteriorating external demand. 

The chances of the ECB rate hike are priced-out as money market dealers see only 60% chance of ECB delivering a rate hike in 2019, down from 75% on Thursday.

The Eurozone PMI and GDP growth