The Eurozone economy showed signs of recovery at the beginning of the year, with the composite PMI rising above the neutral line in January, but inflation accelerated for the fourth consecutive month, reaching its fastest pace since April 2023. Business activity in Germany stabilized in January, with a reduced decline in export Business. The manufacturing PMI in France continued to shrink, but the rate of decline was the slowest since September of last year.
The Eurozone economy showed signs of recovery at the beginning of the year, but weak demand and escalating inflation remain challenges.
Germany's private sector business activity stabilized in January, ending six months of contraction, with growth in the services sector offsetting a continued decline in manufacturing output. The France PMI continued to shrink, but the pace of decline was the slowest since September last year.
On the 24th, S&P Global and Hamburg Commercial Bank (HCOB) announced the preliminary January PMI for the Eurozone, Germany, and France.
Eurozone business activity recovered in January, with inflation rates reaching a new high in 21 months.
In the first month of 2025, the Eurozone's private sector business activity experienced new growth. However, due to persistently weak demand, the pace of expansion was only slight. Meanwhile, input costs rose significantly, and inflation rates reached a new high in 21 months.
- The preliminary service industry PMI for the Eurozone in January was 51.4, expected: 51.5, previous value: 51.6.
- The preliminary manufacturing PMI for the Eurozone in January was 46.1, expected: 45.4, previous value: 45.1.
- The Eurozone's January Composite PMI preliminary value is 50.2, expected: 49.7, previous value: 49.6.
The Eurozone Composite PMI rose above the expansion threshold of 50.0 in January, indicating the first growth in Eurozone business activity since August 2024. The pace of recovery in Eurozone output is constrained by persistently weak demand. New Orders have declined for the eighth consecutive month, but the decline was small, the least since August of last year.
Data shows that the overall expansion of business activity is mainly concentrated in the service sector. In January, service sector activity rose for the second consecutive month. Meanwhile, manufacturing output continues to decline. The contraction rate remains solid, but it has narrowed to the weakest level since May of last year.
New export orders have been declining for nearly three years, and although the decline in January narrowed to the lowest point in six months, the pace of decline remains steady.
In January, input costs accelerated sharply. The inflation rate accelerated for the fourth consecutive month, the fastest since April 2023. The rise in input prices is also above the series average level. Manufacturing input costs increased for the first time in five months, while the service sector saw the most significant growth in input costs in nine months.
Output prices rose further as businesses passed higher cost burdens onto customers. The pace of inflation also sped up compared to December, reaching the highest level in five months. The increase in charging prices was mainly led by Germany, which had the fastest increase since February 2024. The pace of output price inflation also accelerated in other regions of the Eurozone, while France experienced its first decline in sales prices in nearly four years.
The number of employed has declined for the sixth consecutive month. The number of employees in the service sector recorded the fastest growth in six months. Employment further decreased in Germany and France, while other regions of the Eurozone continued to create jobs.
At the beginning of 2025, business confidence is basically stable, and companies remain optimistic that output will increase in the coming year. However, market sentiment is still weaker than the series average. Optimism in manufacturing has risen to a seven-month high, but confidence in the service industry has declined. Market sentiment in Germany has risen sharply, while confidence among French companies is only slightly above the positive zone. Other regions in Europe show strong optimism.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated:
Before next week's European Central Bank meeting, the news regarding prices is not encouraging. Cost inflation in the service industry has increased, and ECB President Christine Lagarde has stated that this area will be monitored closely. The pricing pressure in manufacturing might be due to the weakening euro and Germany's increase in carbon taxes. In the service sector, it may be due to rising wages.
However, given the weak state of the economy, the European Central Bank may continue its gradual rate cuts in the short term.
In January, business activity in Germany tends to stabilize, with a reduced decline in export business.
In January, the German economy shows initial signs of recovery. The composite PMI output Index for Germany rose from 48.0 in December 2024 to 50.1, basically aligning with the 50 mark, ending a streak of six consecutive months below 50.
- Germany's preliminary manufacturing PMI for January is 44.1, expected at 42.7, the previous value was 42.5.
- Germany's preliminary service industry PMI for January is 52.5, expected at 51, the previous value was 51.2.
- The preliminary Composite PMI for Germany in January is 50.1, expected 48.3, previous value 48.
After the announcement of the PMI in Germany, the euro rose 0.8% against the dollar, reaching 1.0493, the highest point since December 18. Traders have reduced expectations for interest rate cuts by the European Central Bank this year, expecting 92 basis points.
By industry, the service sector's growth rate accelerated to the fastest since July last year. The Business Activity Index for the service sector rose from 51.2 to 52.5, the highest level in six months. Meanwhile, the decline in manufacturing output significantly narrowed compared to December, the smallest in eight months, but the manufacturing output index remains in the contraction range.
Demand for German commodities and services continues to decline. The volume of new business has also decreased, but the decline is narrower than last month. The weak trend is mainly concentrated in manufacturing. In January, new export business for German companies continued to decline, but the drop was the smallest in eight months.
The lack of new business has further reduced the backlog of unfinished work in the German private sector, continuing a declining trend that has lasted for two and a half years. The pace of backlog consumption remains significant, but it slowed for the third time in the past four months, the slowest since mid-2024.
Notably, price pressures in Germany have increased further in January. Driven by significant cost increases, the average charge prices for commodities and services rose at the fastest pace in 11 months. Rising RBOB Gasoline prices, increased carbon taxes, and wage hikes are the main driving factors behind the sharp acceleration of input costs in the service sector in January. As the decline in manufacturing procurement prices has markedly narrowed compared to last month, the overall input cost inflation rate has reached its highest level in nearly two years.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated:
After a brief fluctuation in November, service sector businesses have increased their activity for the second consecutive month. Manufacturing output is shrinking at the slowest pace since mid-2024, with new orders improving slightly.
A highlight of this shift towards optimism is a better outlook for future activity, which is complemented by the German DEGUODAXZHISHU outperforming the USA S&P 500 Index in January.
French manufacturing PMI continues to shrink, but the pace of decline is the slowest since September of last year.
At the beginning of 2025, the French Composite PMI Output Index has been below the neutral line of 50 for the fifth consecutive month. However, the index rose from 47.5 in December to 48.3, reaching the highest level in four months, indicating that the pace of contraction in private sector output is further slowing.
- In January, the preliminary value for France's manufacturing PMI is 45.3, with expectations of 42.5 and a previous value of 41.9. A new 55-month low.
- In January, the preliminary value for France's services PMI is 48.9, with expectations of 49.4 and a previous value of 49.3.
- In January, the preliminary value for France's composite PMI is 48.3, with expectations of 47.7 and a previous value of 47.5.
After the PMI release in France, traders maintained stable bets on the European Central Bank, expecting it to reach 94 basis points in 2025.
In January, the decline in business activity in the French private sector narrowed mainly due to manufacturing. Manufacturing output recorded the smallest decline since the middle of last year. In contrast, service sector activity saw a slight acceleration in decline in January.
At the beginning of 2025, new Orders from French companies declined for the eighth consecutive month, but the pace of decline was the slowest since August last year. Some respondents indicated that customer interest has rebounded, and the market environment has also somewhat improved. Sales to overseas customers continued to decline, but compared with last month, the declines for manufacturers and service providers have clearly narrowed.
In January, French companies slowed the pace of completing outstanding Orders, partly due to improved sales conditions in some economic sectors. Service sector companies only slightly digested backlogged Orders, and the pace of progress has significantly slowed compared to the average level in 2024.
French companies reported an accelerated pace of layoffs, with employment in the private sector declining at the fastest rate in over four years.
Economist Tariq Kamal Chaudhry of Hamburg Commercial Bank stated:
Input prices remain in an inflationary state, although the increase in January was significantly below the long-term average. In contrast, output prices are contracting, indicating a severe demand situation.
Political uncertainty, business bankruptcies, client budget cuts, and expectations of declining revenue are among the concerns expressed by participants.
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