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Eurozone business activity growth remained subdued in December 2019

Business activity growth in the eurozone remained subdued in December 2019 despite the corresponding index improving to a four-month high, thereby staying at a level among the lowest seen since the first half of 2013, according to IHS Markit.

The IHS Markit final eurozone composite output index came in at 50.9 in December 2019, surpassing the flash estimate, the consensus forecast of economists polled by Econoday as well as the prior month's reading of 50.6.

A reading below 50.0 indicates contraction, while anything above that level indicates expansion.

The latest reading, which indicates fourth-quarter 2019 economic growth of more than 0.1% in the bloc, reflected continued divergence between manufacturing and services economies, with the latter offering impetus to overall growth in the bloc. Meanwhile, manufacturing output fell at the fastest pace in approximately seven years.

New work expanded for the first time in four months in December 2019, while exports declined for the 15th month in a row. In addition, weaker new business growth and spare capacity continued to pile pressure on hiring as payroll numbers increased at the softest rate for five years.

German business activity rebounded out of contraction territory during December 2019 as the composite output index came in at 50.2, beating the Econoday consensus forecast, the flash estimate and the previous month's index reading of 49.4.

The first increase in combined manufacturing and services output for four months was fueled by a rise in Germany's service sector performance, with the services PMI business activity index rising to 52.9 from 51.7 recorded in November 2019.

Despite the upturn in the combined output, Germany's fourth-quarter 2019 economic growth is expected to stagnate "at best," according to Phil Smith, principal economist at IHS Markit.

"Nothing spectacular is expected for the opening quarter of 2020, though the signs are that things might be starting to turn, with indicators for new orders and business confidence on an upward trajectory across manufacturing and services alike," Smith said.

In addition, business activity in France registered modest expansion in December 2019, with the composite output index ticking down to 52.0 from 52.1 in the prior month. Growth was supported by services, with the corresponding business activity index rising to 52.4 from 52.2 in November 2019.

Business optimism about the year ahead in the eurozone rose to the highest level since May 2019, while Germany in particular saw a robust increase in confidence since November 2019 and confidence in France weakened to a four-month low.