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Eurozone PMI indicate cautious return to growth in business activity

Jay's InsightFriday, Jan 24, 2025 9:15 am ET

1min read

The latest HCOB Flash Eurozone PMI report for January 2025 indicates a cautious return to growth in Eurozone business activity, with the composite PMI output index rising to 50.2 from 49.6 in December—a five-month high. This modest expansion marks the first increase in private sector activity since August 2024, driven by a rebound in services and easing declines in manufacturing. However, ongoing demand weakness and inflationary pressures underscore the fragility of this recovery.

The services PMI edged down slightly to 51.4 from 51.6 but remained in expansion territory for the second consecutive month. Growth in the services sector was supported by improved demand, with new business expanding modestly after months of stagnation. Manufacturing, while still in contraction, saw its PMI climb to 46.1 from 45.1, marking its highest reading in eight months. Manufacturing output showed similar improvement at 46.8, reflecting a slower pace of decline, particularly in Germany, which stabilized after a prolonged downturn. France continued to contract, albeit at its slowest pace since September, while the rest of the Eurozone posted moderate growth for the 13th consecutive month.

On the employment front, there were signs of stabilization, with staffing levels almost flat in January following six months of decline. The services sector saw its fastest job growth in six months, nearly offsetting substantial workforce reductions in manufacturing. Nonetheless, job creation was geographically uneven, as Germany and France recorded further employment declines, while other Eurozone economies saw gains. Backlogs of work fell at a slower pace, hinting at a potential bottoming-out in labor market conditions.

Inflation pressures intensified at the start of 2025, with input costs rising at their fastest pace in 21 months, particularly in services. Manufacturing input costs, which had stabilized over the prior months, rose again due to higher energy costs and supply chain constraints. Output prices also accelerated, with Germany recording the fastest increase since early 2024. However, France saw a rare decline in selling prices, reflecting weaker demand and competitive pressures. These inflation dynamics are expected to remain a key focus for the European Central Bank (ECB) as it evaluates its monetary policy stance in the coming weeks.

Overall, the PMI report paints a picture of tentative recovery amidst significant challenges. Services activity continues to be the main driver of growth, while manufacturing shows signs of nearing a bottom after a prolonged recession. Inflationary pressures and weak demand, particularly in international markets, remain headwinds to a sustained rebound. Nonetheless, improving business confidence in Germany and steady optimism across the rest of the Eurozone offer a glimmer of hope for stronger growth in the months ahead.

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