• Previous 49.5
• Composite PMI 49.6 vs 49.5 prelim
• Previous 48.3

The readings were a marginal improvement on initial estimates, but overall, they still signaled a slight contraction in eurozone business activity in December. Worryingly, price pressures in the services sector are increasing on balance, and this threatens to keep the disinflation process on an even more uneven path in the coming months. HCOB notes that:

“At the ECB press conference, President Lagarde reiterated that services inflation is still too high. December’s services PMI survey confirms this, showing that costs are rising even more strongly than the previous month, likely due to higher wages. Some of these higher costs were passed on to customers, leading to higher sales price increases. In terms of monetary policy, this means the central bank should remain cautious and make only small interest rate cuts in the first quarter of 2025.

“In retrospect, 2024 was not such a bad year for the service sector. The first half started moderately, growth then weakened, but seemed to pick up a bit towards the end. Employment in services grew throughout the year, although the increase in December was only small. The steady decline in the order backlog is worrying, but it has not completely subsided. Service providers maintained their confidence, with the future business outlook largely positive and even improved in December, despite an index measuring sentiment below the long-term average.

“December’s PMI data doesn’t set a fantastic foundation for a boom in the services sector in 2025, but at least incoming business has stopped falling and the decline in backlogs has softened. Service providers can count themselves lucky that, unlike manufacturers, they are not directly affected by the threat of US tariffs. Overall, they should help ensure that industrial weakness does not completely drag down the entire economy in 2025.