Shrinking business activity was driven entirely by the manufacturing sector, with France being the weakest-performing out of the three biggest economies within the eurozone.
Falls in new business and employment were the major reasons why the eurozone economy ended 2024 with a slight contraction, according to the HCOB Eurozone Composite PMI Output Index, the result of a survey of around 5,000 private sector companies.
The composite Purchasing Managers’ Index (PMI), which includes both manufacturing and services stood at 49.6 in December 2024 in the eurozone, following November’s 48.3 figure. A reading above 50 indicates an expansion in activity compared with the previous month, while a reading below 50 reflects a contraction.
“Sustained decline in new business weighs on activity and employment, but confidence improves”, said the report, adding that the eurozone’s contraction in December was entirely manufacturing-led, with a sharp drop in factory production, as services activity bounced back.
Employment across the euro-using countries subsequently fell in December, with firms reducing their workforce capacity, not just by redundancies, but by non-renewal of temporary contracts or refraining from replacing departing employees.
“The rate of job shedding was the joint-sharpest in four years (matching that seen in October)”, said the report, adding that the trend was exclusively driven by the manufacturing sector.
According to the report, the price increases for businesses were accelerating in December across the bloc.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “At the ECB press conference, President Lagarde reiterated that services inflation is still too high. December’s PMI survey for the services sector confirms this, showing costs rising even more sharply than the previous month, likely due to higher wages. Some of these higher costs have been passed on to customers, leading to a bigger increase in selling prices. For monetary policy, this means the central bank should remain cautious and make only small interest rate cuts in the first quarter of 2025.”
However, the ECB is facing a difficult moment with pressure to take a more active role in boosting the economy, which is facing major risks of contraction. The ECB has also been accused of being too slow to cut interest rates recently to help the eurozone’s stagnating economy, reported FT, citing dozens of economists they polled.
Best and worst-performing economies in the eurozone
The three biggest economies in the bloc, Germany, France and Italy, all recorded reductions in business activity during the final month of 2024.
On the other hand, Spain and Ireland recorded continued expansions in economic activity, with private sector output in Spain rising at the fastest pace since March 2023.
France, the weakest-performing economy among these five countries, posted a composite PMI of 47.5. It was followed by Germany (48), and Italy (49.7) which saw just a marginal decrease in output.
Gloomy performance among French businesses
Private sector activity in France contracted for the fourth consecutive month in December, but less than initially estimated. Mainly driven by a decline in demand in foreign markets, the decrease in new orders continued in December but was less severe than in the previous month.
The services PMI index came in at 49.3 in December, up from the 10-month low recorded in November (46.9). In this sector, workforce numbers fell for the first time in four years, though the reduction was only marginal.
The manufacturing PMI fell further from 43.1 in November, to 41.9 in December, signalling the sharpest contraction in activity since May 2020.
Slowing contraction in Germany
In Germany, the composite PMI was revised higher to 48 in December 2024 from a preliminary of 47.8. Compared with a reading of 47.2 in November, it shows that the private sector is facing a slowing contraction, and the numbers also indicate that services started expanding again after a short contraction in the previous month.
However, it was not enough to offset the sharp decline in manufacturing production, driven by a drop in new orders.
Overall, employment in the two sectors combined decreased for the seventh month in a row. But business expectations are slightly better, sitting at a four-month high.
Italy shows promising signs
The private sector in the third largest economy in the bloc has been close to avoiding contraction, with its composite PMI coming in at 49.7, close to the 50 mark.
However, new orders kept falling for the second month in a row, with both manufacturing and services recording less sharp declines than previously and employment remaining steady. Businesses in the service sector actually hired for new positions at the fastest pace since July, although the manufacturing sector reported lower employment rates.
As with other major economies, services returned to expansion with the Italian services PMI rising to 50.7 in December 2024 and reversing the brief decline seen in November. Business confidence for the next months also improved across the services sector.
Business booming in Spain
Spain recorded the strongest growth in private sector activity over the past 21 months; its services sector rose at a robust pace to 57.3 from November’s 53.1, and the manufacturing activity expanded slightly to 53.3 from 53.1. The expanding business activity also pushed overall employment numbers higher in the private sector.
