The eurozone economy concluded 2024 in a delicate condition, as indicated by a survey revealing that overall activity contracted for the second consecutive month in December. This decline occurred despite a slight recovery in the services sector, which was unable to balance the more significant downturn in manufacturing.
The final composite Purchasing Managers’ Index (PMI) for the eurozone, compiled by S&P Global and regarded as a reliable indicator of economic health, increased to 49.6 in December, up from 48.3 in November. Although this figure exceeded a preliminary estimate of 49.5, it remained below the critical threshold of 50 that distinguishes growth from contraction. Due to the holiday season, the data collection occurred earlier than usual, spanning from December 5 to 18.
Services sector performance
The headline index saw an uplift from the region’s predominant services sector, whose PMI recovered to 51.6, surpassing the breakeven point after November’s reading of 49.5. However, this was countered by a sharper decline in manufacturing activity.
U.S. President-elect Donald Trump, set to return to the White House later this month, has committed to implementing tariffs on a wide range of goods.
New business and pricing trends
An index tracking new business in the services sector, which serves as a gauge for demand, returned to growth after three months of decline, reaching 50.2 in December, an increase from November’s 48.1. This occurred despite an uptick in overall prices charged by firms as they sought to recover from a notable rise in input costs. The composite output prices index climbed to a four-month high of 52.5, up from 51.9.
Central Bank responses to economic challenges
In response to the economic challenges posed by domestic political instability and the looming threat of a U.S. trade war, the European Central Bank lowered interest rates for the fourth time in December, leaving open the possibility for further easing. According to a Reuters poll, it is anticipated that the ECB will cut rates by at least 100 basis points more this year.
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