Key European economy looks set for recession

investmentnews.com:

Private-sector activity in the euro area worsened at the end of the year, raising the risk that the region may experience a recession in the second half.

S&P Global’s purchasing managers’ index contracted for a seventh month in December, falling to 47. That defied economist expectations of a slight uptick — though they still predicted that the gauge would remain well below the 50 level that marks expansion. Readings for both manufacturing and services showed a slump.

“The figures paint a disheartening picture as the euro-zone economy fails to display any distinct signs of recovery,” Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said. “The likelihood of the euro zone being in a recession since the third quarter remains notably high.”

Friday’s numbers — which also showed that inflows of new business fell sharply — chime with indicators and data that suggest the region’s contraction in the three months through September saw a repeat in the final period of the year. Still, the European Central Bank’s latest forecasts, published Thursday, predict a slight improvement in the period.

Similar to the overall trend, separate PMIs for Germany and France showed the downturn worsened in the euro area’s two biggest economies.

German bonds extended gains and the euro fell after the figures were released. Traders added to bets on ECB rate cuts next year after the softer data, pricing 155 basis points of monetary easing — that’s down from about 150 basis points on Thursday.

What Bloomberg Economics Says…

“The survey suggests the broader picture is one of an economy still contracting. That creates downside risks for our forecasts as well as the European Central Bank’s and should keep market expectations for an interest-rate