The eurozone economy experienced a slight contraction in December 2024, as per the latest Eurozone Composite PMI data, published on Monday 6 January 2025. Persistent declines in new business and employment, coupled with heightened inflationary pressures, underscored the fragility of the region’s economic landscape. Despite a modest improvement in firms’ growth expectations, confidence levels remained historically subdued.

Key trends

The seasonally adjusted Eurozone Composite PMI Output Index, which combines data from the Manufacturing PMI Output Index and the Services PMI Business Activity Index, stood at 49.6 in December. While this represented a recovery from November’s 48.3, the index remained below the neutral 50.0 mark, indicating an overall decline in economic activity.

The contraction was largely driven by the manufacturing sector, which saw a sharp drop in production, offsetting a modest expansion in services. Among the eurozone’s major economies, France reported the weakest performance, followed by Germany, while Italy experienced a marginal decline. In contrast, Spain and Ireland saw continued growth, with Spain recording its fastest private sector output growth since March 2023.

New business and employment

Demand for euro area goods and services declined for the seventh consecutive month, reflecting a sustained downward trend. While services firms saw a fractional rise in new business, the manufacturing sector suffered from an accelerated fall in factory orders. Export demand from non-domestic clients continued to weaken, extending the nearly three-year-long sequence of decline. 

Employment levels in the eurozone fell in December, with job shedding in the manufacturing sector driving the decline. Although services firms reported a slight increase in headcounts, it was insufficient to counteract the factory retrenchments. The rate of job losses matched October’s pace, the sharpest in four years. 

Inflation

Price pressures intensified in December, with input costs rising at their fastest pace since July 2024. Manufacturing expenses remained stable, but services firms faced significant cost increases, likely linked to higher wages. Output charges also rose, driven primarily by price-setting in the services sector, reaching a four-month high. Goods producers, however, engaged in discounting to support demand.

Business sentiment

Business sentiment across the eurozone improved in December, reaching its highest level since September 2024. However, optimism remained below historical averages. The manufacturing sector’s difficulties continued to weigh on overall confidence, although service providers maintained a comparatively brighter outlook for 2025.

Commenting on the findings, Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, highlighted the persistent challenges facing the eurozone economy. He noted that services inflation, driven by rising wages, remained a significant concern for monetary policymakers. Despite a relatively steady year for the services sector, he warned that the decline in order backlogs and subdued sentiment could hinder robust growth in 2025. “For monetary policy, this means the central bank should remain cautious and make only small interest rate cuts in the first quarter of 2025,” added Rubia.

While the services sector showed resilience in December, its performance was not sufficient to offset the broader industrial weakness. This dynamic underscored the challenges facing the eurozone as it sought to stabilise its economic trajectory in the new year.

The Eurozone Composite PMI is compiled by S&P Global using data from manufacturers in Germany, France, Italy, Spain, the Netherlands, Austria, Ireland and Greece, as well as service providers in Germany, France, Italy, Spain and Ireland, encompassing around 5,000 private sector companies.