SAEDNEWS: The euro zone economy expanded at a slower pace last month but ended 2025 with its strongest quarterly growth in more than two years as solid momentum in services offset a manufacturing contraction, a survey showed on Tuesday.
HCOB's final composite Purchasing Managers' Index (PMI) for the bloc, compiled by S&P Global and considered a reliable gauge of overall economic health, fell to 51.5 in December from November's 30-month high of 52.8, below a preliminary estimate of 51.9.
Remaining comfortably above the 50 mark that separates growth from contraction, the reading indicated that the economy expanded every month in 2025—a streak not seen since 2019. The fourth-quarter average PMI of 52.3 was the highest since the second quarter of 2023.
"Against this backdrop, GDP growth is likely to have accelerated," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
"In 2026, the service sector should continue on a moderate growth path. The manufacturing sector is likely to benefit from higher demand for defense equipment and construction machinery. As a result, economic growth of well over 1% should be possible again, but it is certainly not overwhelming."
New orders rose for the fifth consecutive month, though at the slowest pace since September. Manufacturing showed a sharper decline in new factory orders, while service companies reported softer sales growth.
The services activity index eased to 52.4 from November’s 2½-year high of 53.6.
Among major economies, Spain stood out with its composite index reaching a two-month high, while Germany’s expansion slowed to a four-month low. Italy’s business barely grew, and France’s private sector activity stagnated.
Meanwhile, input cost inflation accelerated to a nine-month high, reflecting rising price pressures across both sectors, though output price inflation remained unchanged from November.
“The European Central Bank continues to monitor service inflation very closely—and rightly so, because cost inflation in this sector rose again in December," de la Rubia added.
"This trend, coupled with slightly higher sales price inflation, is, in our view, the main reason why the ECB has not implemented further interest rate cuts and does not appear to plan any."
Overall employment growth edged slightly higher from November, though gains remained marginal due to ongoing manufacturing job reductions.
