Eurozone Private Sector Contracts as Job Cuts Accelerate

The Eurozone private sector ended 2024 in contraction, with business activity declining for the second consecutive month, according to provisional PMI survey data from S&P Global, released today. The downturn, driven by a sharp fall in manufacturing output and sustained decline in new orders, resulted in the fastest pace of job cuts in four years.

The HCOB Flash Eurozone Composite PMI Output Index registered 49.5 in December, up slightly from 48.3 in November but still below the 50.0 no-change mark, signaling a marginal decrease in overall output. This decline reflects a deeper contraction in manufacturing, which offset a modest return to growth in the service sector.

"The end of the year is somewhat more conciliatory than was generally expected," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. "Service sector activity returned to growth territory and is showing a noticeable, if not exuberant, pace of expansion, similar to that seen in September and October."

The manufacturing sector continues to struggle, experiencing its twenty-first consecutive month of contraction, with December marking the most significant decline in a year. The downturn in both manufacturing and services is reflected in reduced new orders, which have fallen for seven consecutive months. New export orders, including intra-Eurozone trade, also decreased at a faster rate than total new business.

The decline in business activity has led to a significant reduction in employment. Companies reduced staffing levels for the fifth consecutive month in December, with the pace of job cuts reaching a four-year high. Job losses were particularly pronounced in the manufacturing sector, while the service sector saw near stagnation in employment numbers.

Despite the overall negative trends, input and output price inflation accelerated in December, with input costs rising at their fastest pace in four months. This increase in input costs was largely driven by the service sector, while manufacturing input costs continued to fall, albeit at a slower rate.

"Higher wage agreements are partly to blame, as businesses pass these costs on to customers," de la Rubia explained. "Given this backdrop, the ECB played it safe by only cutting interest rates by 25 basis points."

While business confidence improved slightly in December from its November low, it remained below the survey average. Looking forward, optimism about output growth in the next 12 months strengthened in both manufacturing and services, although sentiment remains weaker in Germany and France compared to the rest of the Eurozone.