France Lags as Euro Zone Recovery Gains Momentum

Private sector activity in the euro zone saw an increase in December, suggesting stronger growth in the region. However, there are growing concerns regarding the pace of decline in France, which could hint at a potential recession.

The euro zone’s composite output index rose to a three-month high of 52.1 in December, up from 51.7 in November. This improvement signals that policymakers at the European Central Bank may not need to implement additional stimulus measures. This marks the fastest growth rate since April 2011.

New orders also increased, reaching the highest levels since mid-2011, which bodes well for the ongoing recovery as the region enters 2014.

Boosted by rising exports, the manufacturing purchasing managers’ index for the euro zone climbed to a 31-month high of 52.7 in December, up from a final reading of 51.6 in November, and surpassing expectations of 51.9.

Conversely, growth in the service sector slightly slowed, hitting a four-month low due to weak domestic demand. The services PMI for the euro zone dropped to 51.0 from 51.2 in November, falling short of economists’ predictions for an increase to 51.5.

The report indicates that the PMI is suggesting a GDP growth rate of just 0.2% for the fourth quarter, highlighting the fragility of the euro area’s recovery.

In Germany, the region’s largest economy, private sector output continued to grow in December, with manufacturing PMI rising to a 30-month high of 54.2 from 52.7 in November, exceeding expectations of 53.0.

However, Germany’s service sector expanded at a slightly slower rate this month, with the services PMI declining to 54.0 from 55.7 in November, against predictions for a drop to 55.5.

In contrast, a separate report indicated that the contraction in France’s manufacturing and service sectors worsened in December. The country’s manufacturing PMI fell to a seven-month low of 47.1 from 48.4 in November, while the services PMI dropped to a six-month low of 47.4 from 48.0 last month.

These weak figures have raised concerns regarding the possibility of the French economy recording a second consecutive quarterly decline in the three months leading to December, following a 0.1% contraction in the third quarter, which could push the nation back into recession.