Eurozone economy continues to stagnate, with PMI showing bullish services offset by soft manufacturing

BARCELONA (ICIS)–The Eurozone economy continues to be troubled, with new purchasing manager indices (PMIs) showing a slight overall deterioration as a strong services performance was offset by poor manufacturing at the end of the year.

The HCOB Eurozone Composite PMI for December 2024 indicated a marginal decline in the eurozone economy, with the Output Index at 49.6, up from November’s 48.3 but still below the 50 mark which separates expansion from contraction. ​

The Services PMI Business Activity Index rose to 51.6 from 49.5, showing a modest recovery in the sector, while manufacturing continued to decline sharply. ​ The eurozone faced sustained declines in new business and employment, with inflationary pressures intensifying. ​ Despite this, business confidence improved to a three-month high. ​

Germany, France and Italy all saw reductions in business activity, with France performing the worst. ​ However, Spain and Ireland expanded, with Spain’s private sector output growing at the fastest pace since March 2023. ​

New orders in the eurozone fell for a seventh consecutive month, driven by a significant drop in factory sales, while services saw a slight increase in new business. ​ Export demand also decreased, continuing a near three-year decline. ​

Employment fell in December, with the manufacturing sector driving job losses, while services saw a fractional increase in headcount. ​ Despite lower staffing, companies reduced their work-in-hand volumes. ​Price pressures accelerated with input costs rising at the fastest pace since July, particularly in the services sector, leading to higher output charge inflation. ​

Business sentiment improved, with growth expectations for the coming year reaching a three-month high, although it is still below the historical average. ​

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that services inflation remains high, likely due to rising wages, and suggested cautious monetary policy with small interest rate cuts in early 2025. ​

He highlighted that while the service sector showed resilience, the overall economic outlook remains fragile, with industrial weakness posing a risk. ​

The economist added, “Service providers have maintained their confidence, with future business prospects largely positive and even improving in December, despite the index measuring sentiment being below the long-term average.”