Eurozone investor sentiment fell to its lowest level in more than a year in January, a survey showed on Monday. Germany’s recession-hit economy continued to weigh on the bloc.
The eurozone Sentix index fell to -17.7 in January, from -17.5 in December, marking its lowest level since November 2023. However, the drop was not as severe as analysts’ forecast of -18.0.
The survey of 1,121 investors between January 2 and 4 said there was a potential for a longer-term slowdown in the eurozone economy, with Germany’s weak economy a significant drag. Future expectations showed a slight improvement, rising to -5.0 in January from -5.8 in December.
However, this improvement was overshadowed by a more negative outlook for the current situation, which fell to -29.5 in January from -28.5 in December, the lowest level since October 2022.
The eurozone economy closed 2024 on a fragile note, with surveys showing overall activity contracting for a second straight month in December. A modest recovery in the services industry was not enough to offset a more pronounced decline in the manufacturing sector.
The final composite Purchasing Managers’ Index (PMI) for the bloc, compiled by S&P Global and considered a gauge of overall economic health, rose to 49.6 in December from 48.3 in November. The figure was slightly above the initial estimate of 49.5 but remained below the 50 threshold that separates growth from contraction. The data was collected earlier than usual due to the holiday season, with the survey conducted from December 5 to 18.
The leading index was driven by a recovery in the bloc’s dominant services sector, with the sector’s PMI rising to 51.6 from 49.5 in November. The growth was offset by a sharper decline in manufacturing activity. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said the December PMI data did not provide a solid basis for a services sector boom in 2025, but the decline in new business and backlogs of orders had eased.
Research from the European Central Bank (ECB) published on Monday showed that the extraordinary resilience of the eurozone’s labor market is set to fade as the unique factors that contributed to its strength begin to fade. However, no drastic weakness is expected. While the bloc’s economy stagnated over the past year, the unemployment rate is at a record low of 6.3% as companies continue to hire.
The ECB said that employment growth has outpaced real GDP growth since 2022, a trend that defies historical patterns. This exceptional performance is attributed to rising profit margins, which have allowed companies to retain their workers for longer than usual, even as incomes have been falling.
However, real wages are now rising and in line with historical trends, while energy prices, a key factor in costs, have stabilized. This is narrowing the gap between output and employment. The ECB noted that labor retention peaked in the third quarter of 2022 and that companies' ability or willingness to retain their employees is decreasing. The eurozone labor market is expected to return closer to its historical correlation with output, according to the ECB.
