Eurozone Private Sector Grows In January

(RTTNews) - Euro area private sector returned to growth in January as the contraction in manufacturing activity slowed and the services sector continued to expand, albeit at a slower pace, results of the purchasing managers' survey by S&P Global showed on Friday.

The HCOB composite purchasing managers' index, which combines manufacturing and services, rose to a five-month of high of 50.2 from 49.6 in December. Economists had forecast a modest increase to 49.7.

A PMI reading above 50 suggests growth in the private sector.

The HCOB manufacturing PMI climbed to an eight-month high of 46.1 from 45.1 in December, thus remaining in the contraction territory. Economists were looking for a score of 45.6.

The services industry measure sunk to a two-month low of 51.4 from 51.6 in the previous month. The reading was forecast to remain unchanged.

"The kick-off to the new year is mildly encouraging. The private sector is back in cautious growth mode after two months of shrinking," Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said.

"The drag from the manufacturing sector has eased a bit, while the services sector continues to grow moderately."

The PMI survey showed that there was a near-stabilization in employment in the private sector despite the ongoing demand weakness.

Inflationary pressures remained a concern with input costs rising sharply and the rate of inflation hit a 21-month high. Companies opted to pass on the cost pressures to consumer by raising selling prices at a sharper pace.

"Ahead of the ECB meeting next week, news on the price front is not encouraging," de la Rubia said.

The economist attributed the higher price pressure in the manufacturing sector to the weaker euro and the increased CO2 tax in Germany.

Higher prices in the services sector were 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, the economist observed.

"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," de la Rubia added.

The next ECB policy announcement is due on January 30 and the bank is widely expected to reveal a 25-basis points reduction in interest rates.

Survey results for Germany and France were also released on Friday. There were signs of improvement in the euro area's largest economy, with business activity in Germany stabilizing at the start of the year, ending a six-month sequence of decline.

The German factory PMI rose to an eight-month high of 44.1 from 42.5, which was much better score than the 42.7 economists had forecast. However, the sector remained in the contraction territory.

The services PMI climbed to a six-month high of 52.5 from 51.2 in December. This reading was also better than the economists' prediction of 51.1.

Consequently, the composite index rose to a seven-month high of 50.1 from 48.0, thus suggesting stagnation in the German private sector. The reading was expected to improve to just 48.2.

The French factory PMI also rose to a seven-month high in January, but activity continued to decline. The measure rose to 45.3 from 41.9 in December, beating economists' expectations for a score of 42.4.

The services PMI fell to 48.9, its lowest score in two months, while economists had expected the reading to remain unchanged.

The French composite PMI rose to a four-month high of 48.3 from 47.5, which was a higher reading than the 47.7 economists had forecast.