Eurozone flash PMI signals slight gain in momentum at year-end

Eurozone business activity grew at a slightly faster rate in December, but the pace of expansion was still one of the weakest seen over the past year. The Markit Eurozone PMI^" rose from November's 16-month low of 51.1 to 51.7 in December, signalling a modest upturn in the rate of growth. However, the reading was the second-lowest seen over the past year and failed to prevent the average reading for the fourth quarter from falling to the lowest since the third quarter of 2013.

Markit Eurozone PMI and GDP

The eurozone saw slightly faster growth of business activity in December but still ended the year on a whimper rather than a roar, with worrying weakness still evident in the core countries of France and Germany. The increase was the second-lowest seen over the past year, suggesting the euro area economy expanded by a mere 0.1% in the fourth quarter.

Business activity is growing at the weakest rate for a year-and-a-half in Germany and continues to fall in France. The upturn was therefore driven by the rest of the region, where growth hit a five-month high to round off the best year the 'periphery' has seen since 2007.

Meanwhile, inflationary pressures have fallen, linked largely to lower oil prices. Firms' costs barely rose and selling prices continued to fall.

On one hand, the upturn in the PMI supports the view that the ECB's stimulus is starting to take effect and that more time is needed to assess the impact of current measures. On the other hand, the disappointing rate of expansion, and especially the weakness evident in Germany and France, will add to calls for additional stimulus to be sanctioned without further delay.

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