Eurozone PMI Hits 10-Month Low as Services Join Manufacturing in Contraction

Eurozone Business Activity Falls as Both Services and Manufacturing Contract

The Eurozone economy contracted in November, according to the HCOB Flash Eurozone Composite PMI Output Index, which fell to 48.1 from 50.0 in October, marking a 10-month low. Both the services and manufacturing sectors showed declines, with services slipping into contraction for the first time in 10 months. Weak demand, falling new orders, and low business confidence drove the downturn.

Is Manufacturing Dragging the Eurozone Further Into Recession?

The manufacturing sector continued its long-running slump, with the Manufacturing PMI Output Index declining to 45.1, a two-month low. Manufacturing production has now fallen for 20 consecutive months, with new orders decreasing at the fastest rate seen in 2024. Export demand also weakened, dropping at the sharpest pace since late 2023. Firms have cut workforce numbers in response, with November showing the steepest reduction in manufacturing employment since August 2020.

Why Is the Services Sector Losing Momentum?

After two months of marginal growth, the services sector joined manufacturing in contraction. The Services PMI fell to 49.2, its lowest level since January. This decline stemmed from reduced new orders and weaker business confidence, with optimism falling to a two-year low. Notably, France reported its fastest decline in services activity since the start of the year, while Germany also showed signs of stress. However, services employment rose in November, offsetting broader job cuts.

How Are Price Pressures Affecting Business Conditions?

Price pressures increased in November, with input and output prices rising faster than in October. The services sector experienced sharp cost inflation, driven by rising wages, while manufacturing saw falling input and output prices. These mixed signals add to the challenges for businesses, especially as demand continues to weaken. The inflationary pressures in services are likely to concern the European Central Bank (ECB), given the risks of stagflation.

What Lies Ahead for the Eurozone Economy?

The Eurozone faces significant economic challenges as both demand and business confidence weaken. The ECB will need to balance inflation management with the risks of further economic contraction. Traders should anticipate a bearish outlook for Eurozone equities and a potential weakening of the euro, particularly if political uncertainty in major economies like Germany and France persists.