Euro Zone Business Activity Steady Amid Renewed Price Pressures

Euro Zone Economic Overview

By Indradip Ghosh

Services and Manufacturing Performance

BENGALURU, Jan 23 (Reuters) - Euro zone business activity growth held steady this month as a weaker expansion in the dominant services industry offset milder factory contraction, according to a survey, while price pressures picked up.

Price Pressures and Inflation Trends

The common currency bloc started the year on a weaker note but sentiment has improved since Wednesday after U.S. President Donald Trump backed down on additional tariffs he had threatened to impose on eight European countries as leverage to seize Greenland.

Regional Variations in Business Activity

The HCOB Flash Eurozone Composite PMI, compiled by S&P Global, held at 51.5 this month but fell short of a Reuters poll forecast for 51.8. It remained above the 50.0 level that separates growth from contraction for a 13th straight month.

"Overall, these are decent data, supporting the view of a relatively resilient euro zone economy in the face of multiple shocks and ongoing policy uncertainty," said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics. "That said, the bar to meet official and consensus forecasts is now higher."

PRICE PRESSURES BACK ON RADAR

New orders rose at the weakest rate since September and new export business contracted at the quickest pace in four months, suggesting demand remained weak across the board. Firms shed jobs for the first time since September.

The services PMI slowed to a four-month low of 51.9 from 52.4 in December, lower than the Reuters poll prediction of 52.6. 

Manufacturing activity contracted again but at a slower pace.

An index measuring output, which feeds into the composite PMI, barely returned to expansion territory but new orders contracted for a third straight month. 

PMIs showed mixed activity across the bloc. In Germany, business activity grew at its fastest pace in three months in January but employment fell at the quickest rate since November 2009.

However, activity in France unexpectedly contracted in January, after two months of meagre growth.

In Britain, a separate PMI showed businesses reported the fastest growth since April 2024. But inflation and joblessness increased, too. 

Overall price pressures intensified with input costs rising at the fastest rate since February and output charges increasing at the quickest pace in nearly two years, reinforcing expectations the European Central Bank will keep rates steady.

"Even though inflation has remained remarkably benign in recent months despite all the economic turmoil, the PMI does indicate increasing price pressures again," said Bert Colijn at ING. "That being said, the moves are not nearly enough to sway the ECB from its expectations to hold rates for the foreseeable future."

Still, optimism about future activity rose to its highest since May 2024.

(Reporting by Indradip Ghosh; Editing by Toby Chopra)