The stark drop here is largely attributed to the decline in the services sector, in which activity fell to a 10-month low. However, manufacturing conditions also struggled with the contraction deepening amid a further decline in production on the month. As a whole, it’s pretty much a case of France and Germany being the main drags while the periphery nations are faring much better. That being said, it is after all France and Germany – two of the biggest slices of the cake in the Eurozone. HCOB notes that:
“Things could hardly have turned out much worse. The eurozone’s manufacturing sector is sinking deeper into recession,
and now the services sector is starting to struggle after two months of marginal growth. It is no surprise really, given the
political mess in the biggest eurozone economies lately – France’s government is on shaky ground, and Germany’s heading
for early elections. Throw in the election of Donald Trump as US president, and it is no wonder the economy is facing
challenges. Businesses are just navigating by sight.
“The services sector took an unexpected dive, with activity dropping for the first time since January. We thought that lower
inflation and higher wages would boost consumption and demand for services, but that hope has been dashed. It doesn’t
look like a recovery is coming anytime soon since both new orders and order backlogs have fallen even faster than in
October.
“The environment in November is stagflationary. On one hand, activity is declining across the board, while on the other, input
and output prices are rising more quickly. This surge is driven by services costs, which ties in with the sharp rise in wages in
the eurozone in the third quarter. Service sector selling price inflation is a major headache for the ECB. Given this backdrop,
some ECB members might even argue for a rate pause in December, but most will probably stick with a 25-basis point rate
cut.
“In November, manufacturing purchase prices didn’t drop as much as the previous month. If the euro keeps weakening,
purchase prices might even rise in the coming months, especially if the EU Commission imposes counter-tariffs in response
to potential US tariff hikes.”
This article was written by Justin Low at www.forexlive.com.
