Markets

The downturn in US business activity is easing slightly; the eurozone back to growth

  • US business activity better than expected but remains soft
  • The Eurozone surprisingly returns to modest growth
  • UK PMI falls at fastest pace in two years, survey shows

NEW YORK/LONDON, Jan 24 (Reuters) – The slowdown in U.S. business activity eased slightly in January, even as it fell for a seventh straight month, while euro zone business activity surprisingly returned to the modest growth that two of the world’s biggest economies hope to stave off recession this year, surveys showed on Tuesday.

said S&P Global its flash US Composite PMI Output Indexwhich tracks the manufacturing and services sectors, rose to 46.6 this month from a final reading of 45.0 in December, the first moderation since September but still well below a key reading of 50 used to separate contraction and growth in the private sector.

The Federal Reserve’s fastest rate hike since the early 1980s has weighed on demand in the world’s largest economy as central banks around the world try to rein in high inflation.

But in a worrying sign, the survey’s measure of input prices for both U.S. services firms and goods manufacturers rose month-over-month for the first time since last May, suggesting the U.S. Federal Reserve may need to keep up pressure through higher interest rates. to bring inflation back to its 2% target.

“The concern is that…the rate of input cost inflation has accelerated into the new year, in part linked to upward wage pressures, which could encourage further aggressive Fed policy tightening despite rising recession risks,” Chris Williamson, chief for business. economist at S&P Global Market Intelligence, said in a statement.

The Fed is poised for a 25 basis point hike at its policy meeting next week, but has seen a pause in its current hike cycle this spring to better balance the risk of bringing down inflation without tipping the economy into recession.

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THE EUROZONE STEERING BACK

The Eurozone is showing more resilience. Business activity there done a surprising return to modest growth in January, adding to signs that the downturn in the bloc may not be as deep as feared and that the currency union may escape recession.

S&P Global’s flash composite PMI, seen as a good gauge of overall economic health, rose to 50.2 this month from 49.3 in December.

January was the first time the index has been above the 50 mark since June, and the reading was better than expected.

“The rise in the purchasing managers’ index is likely to fuel the hopes of many that the eurozone economy may just escape recession after all,” said Christoph Weil at Commerzbank. However, Weil added that a clear deterioration in the economic environment continued to point to at least a mild recession.

A so far moderate winter, falling gas prices and the latest positive economic data meant some quarterly growth forecasts in a Reuters poll published on Monday was upgraded, although a technical recession was still predicted.

Press on Germany’s economyEurope’s largest, fell further in January as inflation eased and businesses looked ahead to the new year with optimism, a sister survey showed, although sentiment remained shy of predicting a return to growth.

IN Francethe bloc’s second-largest economy, overall output fell slightly again in January, its PMI showed, but manufacturing activity improved for the first time since August.

British However, private sector economic activity fell at the fastest pace in two years in January, another PMI showed, as businesses blamed higher Bank of England interest rates, strikes and weak consumer demand for the slowdown.

The dollar languished near a nine-month low against the euro on Tuesday as markets continued this year’s buoyant sentiment following PMI numbers and a number of corporate earnings.

In the euro area, there was mixed news on inflationary pressures, according to the PMI survey. The input price index fell, but companies raised their fees faster. The output price reading also rose, but was still far lower than it has averaged over much of the last three years.

“The PMIs suggest that price pressures remain strong. So there is no prospect of the ECB taking its foot off the brakes any time soon,” said Andrew Kenningham at Capital Economics.

The European Central Bank will deliver 50 basis point interest rate hikes at each of its next two meetings, according to a Reuters poll, with its fastest rate hike campaign so far managing to bring inflation close to its 2% target.

(This story has been refiled to the correct day of the week in the first section.)

Reporting by Jonathan Cable, David Milliken and Dan Burns; Written by Lindsay Dunsmuir; Editing by Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

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