Eurozone Business Activity Contracts in November
The Eurozone experienced a decline in business activity in November, with contractions in both the services and manufacturing sectors. The HCOB Flash Eurozone Composite PMI Output Index fell to 48.1, indicating a 10-month low and signaling contraction. This figure decreased from the October reading of 50.0, which showed no change in activity levels. The expanding services sector joined manufacturing in contraction as the PMI Business Activity Index dropped from 51.6 in October to 49.2, also reaching a 10-month low.
The manufacturing sector continued to struggle; the Manufacturing PMI Output Index fell to 45.1, down slightly from 45.8 in October, and the overall Manufacturing PMI dropped from 46.0 to 45.2, both reaching two-month lows. Data collected between November 12-20 shows that the Eurozone contracted for the second time in three months.
The drop in output is attributed to declining demand; new orders fell for the sixth consecutive month, recording the steepest decline of 2024. This decrease was more pronounced in the manufacturing sector, but the services sector also saw a significant drop in new business. The decline in new business from abroad, including intra-Eurozone trade, was the largest since the end of last year, with new export orders sharply declining.
Confidence in the future of the Eurozone economy also decreased; business confidence dropped to its lowest level since September 2023. The most notable decline in optimism was observed in the services sector, reaching a two-year low. France recorded pessimism for the first time in over four years, while German companies showed a slight improvement in confidence compared to October. However, the rest of the Eurozone maintained a strong positive outlook for the upcoming year, despite a minor drop in optimism.
Employment across the Eurozone marginally decreased for the fourth consecutive month; there was a notable decline in jobs in the manufacturing sector, marking the largest drop since August 2020. In contrast, the services sector experienced the fastest employment growth in four months. While Germany reported a decrease in staffing levels, France and the rest of the Eurozone saw an increase.
Prices continued to rise in the Eurozone; input cost inflation accelerated to a three-month high in November but remained below the annual average. Service input prices increased, offsetting the decline in manufacturing input costs. Output prices also rose at a faster rate compared to October but remained below the annual average. Germany, France, and the rest of the Eurozone reported increases in output prices.
Stocks and supply chains were also affected; manufacturing firms reduced their purchasing activity at the fastest rate of 2024. Purchasing and finished goods inventories were further depleted compared to the previous month, and suppliers’ delivery times remained broadly stable.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on the situation, noting that the Eurozone economy faces challenges such as political uncertainties in France and Germany and the impact of the U.S. presidential election. He highlighted the unexpected drop in the services sector and characterized the environment as stagflationary, marked by declining activity and rising prices. De la Rubia also mentioned the possibility of the European Central Bank (ECB) pausing interest rate hikes in December, while indicating a higher likelihood that the majority would support a 25 basis point rate cut.