The eurozone economy maintained modest growth in January 2026, with mixed performance between services and manufacturing. Provisional PMI survey data pointed to ongoing output growth in the eurozone’s private sector in the opening month of 2026. Business activity increased on the back of higher new orders, while optimism in the outlook hit a 20-month high.
On a less positive note, companies reduced their staffing levels for the first time in four months amid marked job cuts in Germany. Meanwhile, rates of inflation of both input costs and output prices were faster than seen in December. In particular, selling price inflation was the strongest since April 2024.
“The recovery still looks rather feeble. In manufacturing, the headline PMI continues to signal weakness, while growth in services activity is somewhat more moderate than the month before. Overall economic growth remains unchanged. Looking ahead, the low growth in new orders is certainly no game-changer. Instead, the start of the new year points to more of the same in the months to come,” said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.
France sees weakness amid ongoing growth across the eurozone
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index was unchanged at 51.5 in January, thereby signaling a further modest monthly increase in output across the euro area’s private sector. Although business activity continued to rise, the latest expansion was the joint-slowest since last September. Output has now risen in each of the past 13 months.
Manufacturing production in the eurozone economy returned to growth in January, following a first fall in output for ten months at the end of 2025. The pace of expansion was only fractional, however. Meanwhile, growth was sustained in the service sector, but here the rise was the weakest in four months.
“For the ECB, these results are anything but reassuring. Inflation in the services sector, which the central bank is watching particularly closely, has increased significantly in terms of sales prices. Input cost inflation remains an issue as well, though it has accelerated less than sales price inflation. As a result, ECB members are likely to feel validated in holding rates where they are. Some of the more hawkish members may even argue that the next move should be up rather than down,” de la Rubia added.
France sees reduced business activity
Limiting the overall pace of expansion in January was a renewed reduction in business activity in France, where output ticked down for the first time in three months. The weakness in France contrasted with ongoing growth in Germany and across the rest of the eurozone economy. In fact, the solid rise in activity in Germany was the sharpest since last October.
Eurozone companies continued to increase output in response to higher new orders, which rose for the sixth month running in January. That said, the latest expansion in new business was only marginal and the slowest since September 2025. Growth of total new business continued to be restricted by a fall in new export orders. New business from abroad also decreased modestly, albeit to a lesser extent than in December.
“Comparing countries, service activity in Germany expanded in January at a fairly robust pace, while in France, service companies slipped into contractionary territory. This may be linked to the political difficulties in finalizing the 2026 budget. In manufacturing, France shows a slightly better performance than Germany, but in both countries, output growth is nothing to write home about. Overall, Germany’s economy started the new year on a growth path, while monthly output in France has declined,” he added.
Eurozone ends three-month sequence of jobs growth
While output and new orders continued to rise in January, employment levels in the eurozone economy were scaled back, ending a three-month sequence of jobs growth in the euro area. Although marginal, the pace of reduction in workforce numbers was the most marked for almost a year.
Services staffing levels were unchanged following a period of job creation stretching back almost five years, while manufacturing employment continued to fall modestly. National data indicated that the reduction in workforce numbers in the eurozone was centred on Germany, where employment decreased markedly. In fact, excluding the COVID-19 pandemic, the fall in German staffing levels was the most pronounced since November 2009.
On the other hand, employment continued to rise in France and across the rest of the currency bloc.
“While the unemployment rate has been roughly stable over the past year, weakening employment figures in services and ongoing staff cuts in manufacturing point toward a somewhat higher unemployment rate in the coming months. This suggests that the current weak growth trajectory may not be enough to keep employment steady, especially as companies continue striving to become leaner, for example by deploying artificial intelligence solutions,” de la Rubia concluded.
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Business sentiment hits 20-month high
Companies across the eurozone economy were optimistic that output would rise over the coming year, and business sentiment hit a 20-month high in January. Confidence was also above the series average. Optimism strengthened across both monitored sectors, with manufacturing posting the highest sentiment in almost four years.
Confidence improved in both Germany and France, but eased slightly in the rest of the euro area.
