Eurozone private sector closes out 2024 in contraction as manufacturing slows

LONDON (ICIS)–The eurozone private sector ended the year on a bearish note as output contracted driven by a weakening manufacturing sector, which offset a return to growth for services.

The eurozone purchasing managers’ index (PMI) stood at 49.5 for December, according to flash data for the month, an improvement from 48.3 in November but still below growth territory. A PMI score of above 50.0 signifies growth.

Continuing manufacturing sector weakness drove the contraction, and more than offset a rebound in service sector productivity to 51.4, a two-month high, following the contraction last month.

After a difficult, low-demand year, the manufacturing sector ended 2024 at a 12-month low of 44.5, according to S&P Global.

“The manufacturing sector’s situation is still pretty dire,” said Cyrus de la Rubia, chief economist and Hamburg Commercial Bank, which helps to assemble the eurozone PMI data.

“Output fell at a quicker pace in December than at any other time this year, and incoming orders were down too. The destocking cycle in inventories shows no sign of stopping either,” he added.

Manufacturers cut back purchasing activities in the sharpest monthly decline of input buying in 2024, while pricing fell for the industry, but at the slowest rate since values started to decline four months ago.

More robust global PMI data for the previous month indicates that conditions may be stabilizing internationally, which could become a balancing force for the eurozone if momentum continues, de la Rubia said.

Markets have been buffeted by a recent government collapse in the eurozone’s two largest economies, Germany and France, but the prospect of new governments forming earlier than expected could provide some upside potential for 2025, he added.

“If future governments manage to chart a clear course, there could still be positive surprises next year. Eurozone companies were actually slightly more confident than in November that business activity will be higher a year from now than it is today,” he said.

Manufacturing sector momentum also slowed in the UK, with sector PMI falling to 47.3 in December compared to 48.0 in November, an 11-month low.

Overall flash composite PMI numbers for the country ticked up to 50.5, driven by an uptick in service sector output, but the figures still point to an economy that has run aground in the fourth quarter.

Conditions could become chillier still going into 2025, according to Chris Williamson, chief business economist at S&P Global Market Intelligence.

“While the December PMI is indicative of the economy more or less stalled in the fourth quarter, the loss of confidence and increased culling of jobs hints at worse to come as we head into the new year,” he said.

Slowing growth increases pressure for the Bank of England to roll out further rate cuts this week but, with inflation rising steadily, the central bank’s monetary policy committee has ample reason for caution, he added.

Focus article by Tom Brown.

Thumbnail photo: An automotive plant in Bremen, Germany (Source: Shutterstock)