Euro zone business activity returns to growth in Jan, PMI shows

LONDON (Reuters) - Euro zone business activity returned to growth at the start of the year after two months of contraction as demand stabilised, a survey showed on Wednesday.

HCOB's final composite Purchasing Managers' Index for the bloc, compiled by S&P Global and seen as a good gauge of overall economic health, rose to 50.2 in January from December's 49.6.

That matched a preliminary estimate and was just above the 50 mark separating contraction from growth.

The expansion in the bloc's dominant services industry was modest but helped offset an ongoing downturn in the beleaguered manufacturing sector. The services PMI came in at 51.3, just below December's 51.6.

"Growth at service companies played a crucial role in keeping the euro zone economy in expansion over the past year," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

"Sluggish, but slightly accelerating growth in new orders and employment gives hope that this sector will gain a bit more momentum in the first quarter of this year."

Services firms took on headcount faster last month to meet increased demand. But their optimism about the year ahead waned slightly and the business expectations index dipped to 58.5 from 58.8 and has been below the historical average since mid-2024.

"Given the many political uncertainties, particularly the new elections in Germany and the fragile government in France, this isn't surprising. No major growth leaps are expected in this sector for now," de la Rubia added.

Both overall input costs and prices charged rose at a faster pace last month, with the composite input prices index jumping to a near two-year high of 58.5 from 57.0.

The European Central Bank cut interest rates again last week and left a potential further reduction in March on the table.

(Reporting by Jonathan Cable; Editing by Christina Fincher)