Finance
Euro zone businesses start year with modest return to growth, PMI shows
Published by Global Banking and Finance Review
Posted on January 25, 2025
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By Jonathan Cable
LONDON (Reuters) -Euro zone business began the new year with a modest return to growth as stable services activity in January was complemented by an easing of the long-running downturn in manufacturing, a survey showed.
HCOB's preliminary composite euro zone Purchasing Managers' Index, compiled by S&P Global, rose to 50.2 in January from December's 49.6, nudging just above the 50 mark separating growth from contraction.
A Reuters poll had predicted a small shift to 49.7.
"The headline composite PMI for the euro zone improved to 50.2, following an uptick in December and providing some hope that the euro zone's economic recovery may finally gain speed," said Leo Barincou at Oxford Economics.
The recovery was mixed, however. Activity in Germany's private sector stabilised in January, marking an end to a six-month contraction, but in France the services industry shrank further as businesses faced weak demand and political uncertainty.
In Britain, outside the European Union, tepid growth picked up only slightly at the start of 2025 with employment and optimism contracting again, chiming with other signs of a lacklustre expansion and a weakening jobs market.
UPS AND DOWNS
An index measuring the euro zone's dominant services industry dipped to 51.4 from 51.6, but remained above breakeven and was just below the Reuters poll forecast for 51.5.
Suggesting there won't be any big rebound soon, demand growth remained tepid. The new business index rose to 50.7 from 50.2.
But consumer confidence improved this month, official data showed on Thursday.
The downturn in manufacturing activity, which began in mid-2022, eased and its headline PMI jumped to 46.1 from December's 45.1. The Reuters poll had predicted a shallower lift to 45.3.
An index measuring output which feeds into the composite PMI remained sub-50 but soared to 46.8 from 44.3, its highest reading in eight months.
While manufacturers faced rising costs for raw materials they kept the prices they charged steady. The input prices index rose to a five-month high of 51.6 from 50.0.
Inflation in the region was 2.4% in December, above the European Central Bank's 2.0% target, but it cut interest rates for a fourth time last month and kept the door open to more easing as the bloc's economy is being dragged down by political instability at home and the threat of a U.S. trade war.
The ECB has all but guaranteed an interest rate cut on Thursday and policymakers have lined up behind further reductions whereas the U.S. Federal Reserve will hold steady on Jan. 29 and resume cutting in March, according to a slim majority of economists polled by Reuters.
Flying in the face of its peers, the Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis.
Adding to the idea firms in the currency union are not expecting an imminent big upswing in activity they cut headcount in January, albeit only mildly. The composite employment index rose to 49.8 from 49.2, just shy of breakeven.
Further complicating the outlook U.S. President Donald Trump, who returned to the White House on Monday, has vowed to impose tariffs on European Union imports.
(Reporting by Jonathan Cable; Editing by Toby Chopra)