Recent data show that the economic hit on Eurozone the fourth quarter (2022) and the first quarter (2023) will be less bad than we previously thought. We expect a limited fall in GDP of 0.3%. The likelihood that the eurozone will avoid this altogether is increasing. recession. His current data Purchasing Managers Index (PMI) support this point of view. The composite production index for the Eurozone at 50.2 units in January from 49.3 in December returned to growth territory (prices above 50 units), albeit slightly. Composite PMI for Germany, which due to its large manufacturing sector was initially hit hardest by the natural gas supply turmoil, outperformed France in January on the back of strong services activity. However, the combined indicators of both countries remained below the 50-point level, while growth resumed in the rest of the Eurozone as a whole. Current demand remains relatively weak and order books continue to shrink, but less than before. Selling prices for both goods and services also continued to rise, but input cost inflation eased. While there may still be some pass-through of past cost increases to consumers going forward, this suggests that inflation is likely to ease during the year.

And although the eurozone PMI improved in both services and manufacturing almost equally, only the index of activity in the services sector exceeded the 50 point mark that separates recession from growth. According to Markit, growth in the euro area was driven by technology (IT services and equipment) as well as healthcare and pharmaceuticals, while service delivery in the industrial sector also showed a recovery and moved into growth territory. At the same time, the downturn was limited in financial services, including real estate, and in the basic resource sectors, while interpersonal industries such as tourism and leisure and home goods showed signs of stabilizing.

Finally, consumer confidence in the euro area and Germany in particular also improved in January, albeit from a very low level. German survey data shows that while consumer expectations for the economy and their incomes have risen significantly, they remain cautious for now as spending trends subside.

* Mr. Salomon Fiedler is an economist at Berenberg Bank.