Eurozone January flash services PMI 51.4 vs 51.5 expected | Forexlive
- Prior 51.6
- Manufacturing PMI 46.1 vs 45.3 expected
- Prior 45.1
- Composite PMI 50.2 vs 49.7 expected
- Prior 49.6
Some hope at last for the euro area economy? The surprise bounce in the manufacturing sector, notably in Germany, is something to note. However, there’s still a lot to be desired in calling this the true turning point of recovery. But with the services sector still holding up, there is definitely some room for optimism to start the new year. Looking at the details, employment conditions stabilised in January but price pressures were seen accelerating. The latter isn’t something that will be too welcome by the ECB. HCOB notes that:
“The kick-off to the new year is mildly encouraging. The private sector is back in cautious growth mode after two months of
shrinking. The drag from the manufacturing sector has eased a bit, while the services sector continues to grow moderately.
Germany played a major role in improving the eurozone economy, with the composite index jumping back into expansionary
territory. In contrast, France’s economy remained in contraction.
“In a surprising twist, employment in the service sector increased more robustly than in December, when it barely grew. It’s
also encouraging that services incoming new business, which had either shrunk or broadly stagnated over the last four
months, returned to growth. However, the situation remains fragile as outstanding business shrank again, and the same
goes for new export business, which includes tourism.
“The manufacturing sector is still in recession, but the pace of decline eased a bit. The sector continues to shed staff rapidly,
and new orders are falling too. On the flip side, companies are much more optimistic about the future, envisioning higher
output a year from now. This might be an unexpected Trump effect or due to the view that the bottom has been reached
after a near two-year recession.
“Ahead of the ECB meeting next week, news on the price front is not encouraging. Cost inflation has increased in the
services sector, which ECB president Christine Lagarde has said to monitor closely. Selling prices in the sector have risen at
a similar rate to the previous month. Worryingly, input prices in manufacturing have increased, ending four months of stable
or decreasing costs. This higher price pressure might be due to the weaker euro and the increased CO2 tax in Germany. In
the services sector, it’s likely due to wage increases, which rose in the eurozone at the highest rate since the euro’s
inception during the third quarter of 2024, according to Eurostat. However, given the weak state of the economy, the ECB
will likely stick to its gradual pace of cutting interest rates, for the time being.”