The Eurozone economy shows clear signs of contraction.

The euro has depreciated rapidly following the release of PMI data, which reflects ongoing weakness in Eurozone business activity. The Composite PMI dropped to 48.1 in November, as the services sector contracted for the first time in 10 months. This highlights a continued slowdown in manufacturing. Earlier this week, the European Central Bank (ECB) expressed concerns over rising geopolitical tensions and uncertainties in global trade, including potential tariff increases. These concerns have heightened following Donald Trump’s return to the presidency, which could further complicate international trade. Additionally, the escalating conflict between Russia and Ukraine has intensified, with Russia recently deploying new long-range missiles against Ukrainian targets.

The services PMI in the Eurozone fell to 49.2 in November, down from October’s figure and below market expectations of continued expansion at 51.6. This latest figure marks the first contraction after nine consecutive months of growth. Business activity declined for the first time since January, while new orders and export orders dropped sharply. Input costs surged, primarily driven by significant wage increases.

Meanwhile, the Eurozone manufacturing PMI declined to 45.2 from 46 in October, falling short of the expected 46. This indicates a sharp contraction in manufacturing activities. Output declined due to a rapid decrease in new orders. Employment also fell significantly, marking the highest reduction since 2020. Companies have scaled back purchasing activities, including finished goods and production inputs, even though some production costs have slightly decreased.

Wage growth soared to 5.42% in Q3 2024, largely driven by Germany, prompting the ECB to reassess its plan to reduce interest rates as inflation continues to decline. With less than a month until the ECB’s final policy meeting of the year, concerns are mounting among investors that this wage increase might reduce the likelihood of rate cuts in 2025. While the ECB has signaled potential further cuts if economic activity remains weak, some officials caution against hasty action due to persistent wage pressures. Germany's significant wage growth in Q3 could narrow the ECB’s room to maneuver on rate reductions.

The ECB forecasts the Eurozone economy to grow by 0.8% this year, in line with its spring projections. Paolo Gentiloni, EU Commissioner for Economy, stated, “With inflation continuing to fall, private consumption and investment increasing, and unemployment at historic lows, growth is expected to gradually accelerate over the next two years.” Growth for 2025, however, is forecasted to slightly decrease from 1.4% to 1.3%.

The Eurozone's trade surplus increased to €12.5 billion in September, up from €9.8 billion in the same month last year and exceeding market expectations of €7.9 billion. Exports rose by 0.6% to €237.8 billion, while imports fell by 0.6% to €225.3 billion. The increase in exports was largely driven by the chemical sector, which grew by more than 10%. Export growth was particularly strong to the United States, the United Kingdom, and Switzerland, while exports to China declined.