- Prior 52.4
- Composite PMI 51.3 vs 51.5 prelim
- Prior 51.5
Both the services and composite readings are four-month lows, signaling a sustained loss of momentum and leaving the overall rate of growth well below its historical average. The drag in January is largely due to flagging demand conditions as new orders barely rose on the month, while employment stagnated.
HCOB notes that:
“Service companies in the eurozone have expanded their business activities for the eighth month in a row. The growth trajectory can be described as decent, but the situation is still not comfortable. Companies hardly hired any new staff in January. The fact that new business barely grew also shows that the recovery in this sector is still fragile.
“The expansion of the service sector is relatively broad-based geographically. In Germany, Italy, and Spain, there has been growth in each month since September, with France an outlier. There, the difficult political situation appears to be affecting business, which was also reflected in a significant slump in business activity in January. Another dampener is that growth has slowed significantly in Spain and somewhat in Germany, while Italy has seen a slight acceleration. Overall and on a positive note, service providers are as confident as they were in mid-2024 that they will expand their business activity over the next twelve months.
“The European Central Bank is not currently particularly concerned about inflation, as the inflation target of 2% appears to have been achieved. However, it is still worth keeping a close eye on services inflation, as it remains quite sticky and if energy prices rise again – as they are currently doing due to the cold weather – the calm could quickly come to an end. In this respect, ECB members will be a bit concerned by the significant rise in cost inflation in the services sector and the visible increase in sales prices inflation that was signalled by the PMI. At its meeting on February 5, at which key interest rates are expected to remain unchanged, the ECB could refer to this very point.”
