Germany’s contraction eased in November in a signal that growth will return to the euro area’s biggest economy after a likely recession in 2023.
Private-sector activity declined at a slower rate than in the previous month and less than economists had expected, according to business surveys published by S&P Global on Nov 23. Both manufacturing and services saw improved conditions, with new orders falling more moderately.
“Despite remaining in recession territory, the rate of slowdown has eased noticeably,” Hamburg Commercial Bank chief economist Cyrus de la Rubia said in a statement. There’s “growing confidence that a return to growth territory is a plausible prospect, potentially materialising by the first half of the upcoming year”.
With the fifth consecutive monthly contraction, the data suggests a recession in the six months through December will be difficult to avoid. The Bundesbank said this week that output will start to expand only in 2024 as household incomes recover and things look better in the country’s important industrial sector.
French activity remained on a steady downward path in November, however. S&P Global’s purchasing manager index (PMI) was little changed at 44.5, well below the 50 threshold indicating economic expansion.
PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly gross domestic product.
“The French economy is kind of in a dead end,” said Hamburg Commercial Bank economist Norman Liebke. “It looks as if geopolitical and economic uncertainty played a major role here, as this was mentioned by some companies as reason for the lack of new orders.”
Manufacturing and services in the euro zone’s second-biggest economy equally suffered from weak demand. With unused business capacity on the rise, the data pointed to the first decline in private-sector employment in three years.
Inflation remained an issue in both countries, with services companies blaming rising wages for pushing up input prices and output charges still increasing.
“The outlook suggests that inflation is unlikely to experience a significant decrease in the coming months,” Dr de la Rubia said.
Euro-area PMI data on Nov 23 is set to show a continued contraction, while earlier numbers from Australia pointed to a deeper slump. UK figures are expected to indicate a stable downturn. US data will not be published until Nov 24 due to the Thanksgiving holiday and are expected to show slight expansion. BLOOMBERG
