Eurozone PMIs Show Economic Growth, But Momentum is Fading

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New data paints a picture of a Eurozone economy that is growing, but only just.

January's PMI survey showed momentum is on the wane, even if output and confidence are improving enough to avoid an outright downturn.

The headlines from today's PMI release are:

○ Manufacturing: 49.4 vs. 49.2 expected. (prior 48.8)
○ Services: 51.9 vs. 52.6 exp. (prior 52.4)
○ Composite: 51.5 vs. 51.9 exp. (prior 51.5)

🟢 The Positives

Output is still expanding overall

The composite output index held at 51.5, indicating that private-sector activity in the eurozone continues to grow, albeit modestly, and has now expanded for 13 consecutive months.

Manufacturing output has returned to growth

Manufacturing production moved back into expansion territory at 50.2 after contracting in December, marking a tentative stabilisation after a long period of weakness.

New orders are still rising

Total new business increased for a sixth straight month, suggesting demand has not rolled over, even if the pace of growth has slowed noticeably.

Business confidence has strengthened sharply

Sentiment about the year ahead reached a 20-month high and is now above the long-run average, with manufacturing optimism at its strongest in almost four years.

Germany shows renewed momentum

German activity recorded its strongest expansion since October, and the economy is described as having started the year on a growth path, in contrast to recent stagnation.

Supply chain pressures remain manageable

Although delivery times lengthened again, the increase was the smallest in five months, suggesting no fresh supply shock is emerging.

🔴 The Concerns

Growth is losing momentum

The current pace of expansion is among the slowest since September, and both services activity and new order growth have cooled, pointing to a fragile recovery rather than acceleration.

Employment has started to contract

Staffing levels fell for the first time in four months, with the decline the sharpest in almost a year and heavily concentrated in Germany, where job losses were the worst since 2009 outside the pandemic.

France has slipped back into contraction

French output fell for the first time in three months, and services activity moved into contraction, dragging on overall eurozone momentum.

Export demand remains a drag

New export orders continued to fall, reflecting weak external demand and limiting the scope for stronger growth despite domestic stabilisation.

Inflation pressures are re-accelerating

Input cost inflation rose at the fastest pace in nearly a year, while selling price inflation was the strongest since April 2024, led by services and particularly pronounced in Germany.

Manufacturing remains in contraction overall

Despite better output, the headline manufacturing PMI is still below 50, signalling ongoing structural weakness in the sector.

🔵 The Bottom Line

This is not the kind of growth profile that typically generates a virtuous cycle of hiring and investment.

Instead, firms appear to be producing slightly more while cutting staff, reducing backlogs, and staying cautious on expansion.

At the same time, renewed services-led inflation pressure limits the scope for monetary support from the European Central Bank (ECB).

This will reaffirm the ECB's desire to keep rates where they are for an extended period.