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The HIS Markit Flash Composite Purchasing Manager’s Index has hit a low not seen since mid-2013, with a drop in new work leading the decline which indicates that business activity has hardly expanded at all so far this year.

Key Takeaways

• The Euro PMI sank to 50.7 from December’s 51.1, missing even pessimistic growth forecasts, with median forecasts at 51.4.
• The data reflects poorly on the ECB’s recently-ended 2.6 trillion euro quantitative easing bond-buying scheme which was aimed to support growth.
• The reading is the worst since July 2013, with anything below 50 signaling contraction rather than growth.

The ECB is predicted to leave interest rates on hold at its rate decision meeting being held later today in light of the weak business activity data. A Reuters poll recently indicated that the likelihood of a recession has increased, pushing out expectations for when the ECB may lighten monetary policy.

IHS Markit’s report indicated Q1 economic growth of fractionally below 0.1% growth compared to the 0.4% forecast.

An index measuring new business growth fell to 49.3 from 50.7, the first contraction since late-2014. Earlier data from Germany also showed weak activity in the largest Eurozone economy with the second consecutive month of contraction reported in France.

Meanwhile the flash PMI for the bloc’s service industry fell to 50.8 from December’s 51.2, over a 5-year low with the unexpected contraction well below the forecasted growth predicted to take the index up to 51.5. This decline had a ripple effect, leading to hiring cutbacks, with the employment PMI dropping from 53.6 to 51.9, almost a 3-year low.

Finally, factories also showed poor activity with a manufacturing PMI sinking to over a 4-year low from 51.4 to 50.5, below all forecasts which mostly predicted no change in the sector. An index measuring output hit a 4-year low, dropping from 51.4 to 50.5.

Some of the output was generated by running down old orders for the fifth consecutive month, with the backlog of orders still showing contraction at 48.5, slightly above December’s 48.0.

'Euro- area composite PMI suggests an ongoing quarterly GDP growth rate of 0.1%. If we were not where we are with a deposit rate of -0.4% and monthly QE having only just ended the ECB would be openly looking at an interest-rate cut or more QE.' https://t.co/NEJDfYx7Kp

— S.C. (@sallycopper) January 24, 2019

Expert Outlook

Chris Williamson, chief business economist at IHS Markit stated that it was “a very disappointing start to the year. Lots of people had been looking for a rebound in the first quarter but that has not been the case. There has been a pull back in spending by businesses and households, reflecting concern about the general economic environment.”

Market Reaction

The price of gold has seen little reaction to the news, trading down -0.04% at $1,282.63/oz.

The euro has mild selling pressure against the value of the dollar. While no major market activity has come from the report today, it does not bode well for the eurozone economy in general and will be sure to have an impact on the world markets, making the ECB rate decision report due later today particularly important.