European and UK PMIs signal “stubbornly higher” inflation

In Europe, for January 2024, manufacturing PMI, services PMI, and composite PMI were registered at 46.6, 48.4, and 47.9, respectively.

The composite index rose marginally from 47.6 to claim a 6-month high, while the manufacturing PMI reached a 10-month high, rising from 44.4 in December 2023.

Services PMI was at a 2-month low, declining from 48.8, and the manufacturing PMI output index touched a 9-month high having also increased from 44.4 in December 2023.

Price and costs

Euro area service sector costs accelerated to their sharpest since last May, i.e. the highest in eight months.

This also resulted in an increase in ‘selling price inflation’.

On the other hand, manufacturing input costs fell even amid shipping delays and supply chain disruptions, marking an eleventh consecutive month of declines.

HCOB Flash Germany PMI

Germany’s lackulustre private sector continued to contract as business activity fell for a seventh month in a row, amid weakness in demand.

The largest economy in Europe registered manufacturing, services, and composite PMI at 45.4, 47.6, and 47.1, respectively.

Despite the deep contraction, the manufacturing index increased from 43.3 in December 2023 to reach an 11-month high.

The services PMI declined from 49.3 to register a 5-month low while the composite index fell from 47.4 from 47.1 to reach a 3-month low.

The manufacturing output index increased substantially from 43.8 to 46.0 but remained well within contractionary territory.

In terms of prices, ‘inflationary pressures remained elevated’ although manufacturing prices declined, although at its slowest pace in nine months.

For services, total input costs climbed at the sharpest pace in nine months, a worrying sign for underlying costs.

Firms continued to report high financing costs, geopolitical uncertainty, and customer hesitancy.

The export-oriented economy also suffered from weak international demand amid a high-interest rate environment.

Prices charged increased steeply, which led to business expectations remaining subdued on a historical basis.

HCOB France PMI

In the flash PMIs for France, the composite index, services PMI, manufacturing PMI, and manufacturing PMI output index, changed from 44.8 to 44.2, 45.7 to 45.0, 40.7 to 40.5, and 42.1 to 43.2, respectively.

The output index fell to a 44-month low while the other components were each at 4-month lows.

Norman Liebke, Economist at Hamburg Commercial Bank referred to the numbers as showing a ‘depressing picture overall’, as employment increased marginally, while the manufacturing sector in particular continued to shrink on weak demand.

Input prices did increase, likely due to higher wages, while both input and output prices remain firmly in expansionary territory.

In France, businesses were able to forward much of the increased costs on to the customers, which has led to a sharp rise in selling prices as well, primarily in the services sector.

Great Britain

Market watchers have been concerned that a sharp contraction in retail sales data signaled the start of a technical recession for Great Britain, after having faced a contraction in Q3 2023.

However, the report may bring some much needed respite to markets, as Chris Williamson, Chief Business Economist at S&P Global Market Intelligence noted,

Services PMI in the United Kingdom increased to 53.8 for the month of January, rising from 53.4.

Manufacturing PMI in the United Kingdom also rose but stayed firmly in contractionary territory at 47.3, jumping from 46.2 in the previous report. 

Composite PMI came in above consensus estimates of 52.2 and registered an increase to 52.5 in January 2024 as against 52.1 in December 2023.

The Manufacturing output index slowed to a 3-month low at 44.9, falling from 45.4.

PMI services and PMI manufacturing reached an 8-month and 9-month high, respectively.

On the other hand, growth prospects may have strengthened too rapidly and will likely dissuade the Bank of England from cutting rates in the immediate future.

Given shipping delays due to the Red Sea disruptions, Williamson added,

European outlook

Despite elevated prices and financing costs, European one-year ahead business optimism increased for the fourth successive month, while manufacturing and services confidence reached a nine and eight-month high, respectively.

Much of this improvement was amid expectations of a lowered interest rate trajectory later in 2024, which would enable better demand from domestic and international markets.

However, the levels of business optimism are still below pre-pandemic averages.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said,