Eurozone Economic Growth Weakest in Three Years

06 February 2008

HENLEY-ON-THAMES, UK: The headline Eurozone Composite Output Index – which charts both manufacturing and service industry activity – fell sharply to 51.8 in January, down from December's 53.3 and marking the smallest rise in output since November 2004.

A reading of 50 is the fulcrum between growth and recession.

Growth slowed markedly to near-stagnation in services, but picked up slightly in manufacturing (although expansion remained well down on that seen prior to last autumn's slowdown).

These are the report's key findings for January

  • Spain saw output contract at the fastest rate for six years, marking an abrupt end to 56 months of continuous growth.
  • Output also contracted in Italy, though only marginally.
  • Growth slowed for the fifth successive month in Germany, reaching a 31-month low. The weak rate of expansion seen in January contrasted sharply with the surging pace seen at last August's peak. 
  • France continued to record robust growth, the strongest of the big-four by a wide margin.
  • New business
    Only very marginal growth and the weakest increase since November 2004. A modest rise in new orders in manufacturing was in part offset by a small drop in service sector new business (the first decline for four-and-a-half Years).
  • Backlogs of work
    These fell marginally in January, declining for the first time since August 2005. A small rise in manufacturing was countered by a slight reduction in services backlogs.
  • Employment growth
    This was unchanged on the 12-month low seen in December. However, although the rate of increase has eased from last July's six-and-a-half year high, the pace remained only slightly below the average recorded last year. Rates of growth remained largely unchanged in both manufacturing and services, with the latter continuing to record the stronger rate of increase.
  • Input price inflation
    Inflation rose slightly to hit a 17-month high. The increase largely reflected higher raw material, food and energy prices. Cost pressures cooled again in the service sector from November's seven-year high, dropping to a three-month low, but picked up to a six-month high in manufacturing.
  • Output price inflation 
    This rose to a nine-month high in January. The rate of increase was also marginally above the average recorded last year. A ten-month high rate of inflation in manufacturing (as firms sought to pass on higher food and oil prices) contrasted with a slight easing in services.
The Eurozone comprises the eight largest European economies (Austria, France, Germany, Greece, Ireland, Italy, Netherlands and Spain) within the twelve nation euro currency area.

The report, produced for the Royal Bank of Scotland by NTC Research, features original survey data collected from a representative panel of over 5000 companies across the euro area. Questions relate to real events and are not opinion based.

Data sourced from NTC Research (UK); additional content by WARC staff