Eurozone Ends 2024 with Continued Economic Contraction

The eurozone economy remained in a fragile state at the close of 2024, according to the latest HCOB PMI® survey.

The eurozone economy remained in a fragile state at the close of 2024, according to the latest HCOB PMI® survey. Economic activity contracted for the second consecutive month due to persistent declines in new business and employment, with inflationary pressures intensifying. Despite a slight improvement in business expectations, optimism for the next 12 months remained historically weak.

PMI Indicates Ongoing Contraction

The seasonally adjusted HCOB Eurozone Composite PMI Output Index stood at 49.6 in December, up from November’s 48.3 but still below the neutral 50.0 mark. This indicates a continued decline in economic activity, albeit at a softer pace compared to the previous month.

Sectoral Performance

• Manufacturing: Contraction persisted and drove the overall decline in December, with factory output experiencing significant reductions across major economies.
• Services: Showed a modest recovery, as the HCOB Eurozone Services PMI Business Activity Index rose to 51.6 from November’s 49.5. However, this expansion was below the survey average of 52.6, and new business demand remained subdued.

Country-Specific Trends

Among the eurozone’s largest economies:

• France: Reported the weakest performance, with a sharp decline in activity.
• Germany: Also faced continued contraction, though less severe than France.
• Italy: Saw only a slight reduction in output.
• Spain and Ireland: Defied the broader trend, with Spain recording its fastest private sector growth since March 2023.

Key Drivers and Challenges

• Demand Dynamics: The slight rise in services activity was supported by domestic demand, as export business declined for the nineteenth consecutive month. The new business intake for services showed the first improvement since August.
• Employment: Job creation in the services sector continued for the fourth consecutive year, though growth remained modest and among the weakest in recent periods.
• Pricing Pressures: Input and output prices in the services sector rose at accelerated rates for the third straight month, with inflation reaching five- and seven-month highs, respectively.

While firms reported a slight improvement in growth expectations compared to November’s 14-month low, optimism remained historically muted. The December data highlights ongoing economic fragility in the eurozone, driven by manufacturing struggles and subdued recovery in the services sector. Inflationary pressures and weak external demand continue to weigh on the region’s growth prospects.

Source: SP Global