The eurozone has experienced a downturn in business activity, primarily attributed to the struggling manufacturing sector, with France emerging as the weakest performer among the region’s three largest economies.
According to the HCOB Eurozone Composite PMI Output Index, which surveyed approximately 5,000 private sector companies, the eurozone economy ended 2024 with mild contractions due to significant declines in new business and employment.
The composite Purchasing Managers’ Index (PMI), which encompasses both manufacturing and services, recorded a reading of 49.6 in December 2024, an increase from November’s 48.3. A PMI reading above 50 indicates an expansion in economic activity, while a reading below this threshold signifies contraction.
The report indicated a “sustained decline in new business” that is negatively impacting both activity and employment; however, it noted an improvement in confidence levels. The contraction in December was exclusively driven by the manufacturing sector, which faced a substantial decline in factory production, even as activity in the services sector showed signs of recovery.
Consequently, employment rates in eurozone countries fell in December, as businesses opted to reduce workforce capacity through various means, including not renewing temporary contracts and declining to replace departing staff. The report mentioned that the rate of job losses was the most severe in four years, matching figures seen in October, and was predominantly driven by the manufacturing sector.
In December, businesses across the eurozone reported accelerating price increases. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commented on the situation, highlighting that ECB President Lagarde emphasized ongoing concerns about high services inflation. The December PMI survey indicated that costs in the services sector increased more sharply compared to the previous month, likely due to rising wages. This has led to businesses passing on some of those costs to consumers, resulting in a notable uptick in selling prices. From a monetary policy perspective, this could mean the ECB will proceed cautiously, opting for minimal interest rate cuts in the first quarter of 2025.
The ECB, however, is under mounting pressure to take a more proactive stance in reviving the economy, which is contending with significant risks of contraction. Recent reports suggest that many economists believe the ECB has been overly slow to implement interest rate cuts to support the eurozone’s sluggish economy.
Performance of Major Eurozone Economies
In December 2024, business activity declined across the eurozone’s three largest economies: Germany, France, and Italy. Meanwhile, Spain and Ireland recorded continued expansions in economic activity, with Spain’s private sector output increasing at its fastest rate since March 2023.
Among these five countries, France emerged as the weakest economy, registering a composite PMI of 47.5, followed by Germany at 48, and Italy at 49.7, which experienced a minimal decrease in output.
Challenges in the French Private Sector
France’s private sector activity contracted for the fourth consecutive month in December, albeit less severely than initially projected. The ongoing decline in foreign market demand continued to impact new orders, although the decrease was less drastic than in November.
The services PMI index improved to 49.3 in December from a ten-month low of 46.9 in November. This sector witnessed a marginal reduction in workforce numbers for the first time in four years.
The manufacturing PMI fell from 43.1 in November to 41.9 in December, indicating the sharpest contraction in activity since May 2020.
Germany’s Gradual Improvement
In Germany, the composite PMI was revised upwards to 48 in December 2024, compared to a preliminary figure of 47.8. This marks a gradual slowdown in the contraction compared to November’s reading of 47.2, with services beginning to expand again after a brief contraction in the previous month.
However, this growth was insufficient to counterbalance the steep decline in manufacturing output, which was attributed to falling new orders. Employment across both sectors continued to decrease for the seventh month in a row, but business expectations have improved, reaching a four-month high.
Italy’s Near-Stability
Italy’s private sector has almost avoided contraction, with a composite PMI of 49.7, hovering just below the expansion threshold. Although new orders fell for the second consecutive month, both the manufacturing and services sectors reported declines less severe than earlier ones, and employment levels remained stable. Interestingly, businesses in the service sector have been hiring new staff at the fastest rate since July, while the manufacturing sector reported a decline in employment.
Similar to other major economies, Italy’s services sector rebounded, with the services PMI increasing to 50.7 in December 2024, reversing the decline seen in November. Furthermore, business confidence across the services sector has shown notable improvement for the upcoming months.
Spain’s Economic Boom
In Spain, the private sector experienced the strongest growth in 21 months, with the services sector surging to 57.3 from November’s 53.1, while manufacturing activity saw slight expansion from 53.1 to 53.3. This robust growth in business activity led to an increase in overall employment numbers in the private sector.
Photo credit & article inspired by: Euronews
