The eurozone's economy is showing signs of resilience as the private sector contraction eases, with S&P Global’s Composite Purchasing Managers’ Index (PMI) rising to 49.5 in December 2024, up from 48.3 in November. This improvement is largely attributed to the services sector, which has advanced above the neutral mark of 50, indicating growth. However, the manufacturing sector continues to struggle, marking three consecutive years of downturn. This ongoing decline in manufacturing raises concerns about the overall economic stability of the region. [44146d7c]
In response to these economic challenges, the European Central Bank (ECB) has cut interest rates for the fourth time since June 2024, reducing the deposit rate to 1.75%. ECB President Christine Lagarde acknowledged the fading momentum in economic activity and highlighted the downside risks facing the eurozone. Additionally, the ECB has revised its growth outlook for 2025, trimming it from 1.3% to 1.1%. Analysts are cautious, viewing these forecasts as potentially overly optimistic, particularly in light of possible US trade tariffs that could further impact the eurozone's economic landscape. [44146d7c]
Political uncertainty in key member states, particularly Germany and France, is also complicating the economic recovery. The current political climate hampers necessary reforms that could stimulate growth and stability. Earlier PMIs from Germany and France indicated improvements in services, yet both remained below the critical threshold of 50, suggesting that the recovery is uneven across the region. [44146d7c]
In contrast, the UK's composite PMI stood at 50.5, reflecting a more stable economic environment compared to the eurozone. This divergence in performance raises questions about the eurozone's ability to sustain growth amid ongoing challenges. As the ECB navigates these complexities, the focus remains on balancing monetary policy with the need for structural reforms to support a more robust economic recovery. [44146d7c]