Darkest days likely over for euro zone factories, December PMIs show

The downturn in euro zone manufacturing activity has likely passed its trough as supply chains begin to recover and inflationary pressures ease, a survey showed on Monday, leading to a rebound in optimism among factory managers.

S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) bounced to 47.8 in December from November’s 47.1, matching a preliminary reading but still below the 50 mark separating growth from contraction.

An index measuring output, which feeds into a composite PMI due on Wednesday and seen as a good gauge of economic health, also came in at 47.8, up from November’s 46.0, marking its seventh month of sub-50 readings but its highest since June.

The final data was compiled earlier than usual last month due to the holiday season.

“A second successive monthly cooling in the rate of loss of factory output brings some cheer for the beleaguered manufacturing sector as we start the new year,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“Prospects have brightened amid signs of healing supply chains and a marked softening of inflationary pressures, as well as a calming of concerns over the region’s energy crisis, thanks in part to government assistance.”

While the input and output prices sub-indexes remained high, they both dropped substantially, likely welcome news for policymakers at the European Central Bank who have been trying to calm rampant inflation by tightening monetary policy.

With inflationary pressures easing, supply chains healing and an energy crisis likely averted purchasing managers turned optimistic and the future output index jumped to 53.8 from 48.8.

“The number of optimists regarding the year ahead has also now exceeded pessimists for the first time since August, hinting at a steady improvement in business confidence,” Williamson said.