The Eurozone Composite PMI remained stable at 50.6 points in December which means overall activity in the manufacturing and services sector should grow only moderately in Q4. We expect GDP growth at +0.2% q/q. However, the Composite index continued to point to divergence between the two sectors. The services PMI increased to a four-month high of 52.4 while the manufacturing PMI deteriorated slightly (46.9) pointing to contracting activity in the sector. The very reactive central banks globally, including the ECB, should continue to support stabilization in the manufacturing sector while supporting domestic-oriented sectors such as services and construction. In addition, the inventory downward adjustment in Q3 from unusually high levels should moderate into Q4 that should help manufacturing production exit the recession at the turn of the year. A rise in new order inflows for the first time since August is good news. While monetary policy should remain expansionary with another rate cut in H1 2020, we doubt fiscal policy will take the baton. Hence, we expect Eurozone GDP growth to remain below potential, at +1.0% in 2020 after +1.2% in 2019.
