The Eurozone economy concluded 2024 in contraction, with the composite PMI at 49.5, a slight improvement from November's 48.3 and 1.5 points above the consensus forecast but still below 50. While services rebounded to modest growth (51.4), manufacturing stagnated (45.2), marking its 21st consecutive month of decline. Weak demand persisted, with new orders falling for the seventh month, particularly in exports.

Employment cuts accelerated, marking the steepest decline in four years, as businesses adjusted to reduced workloads. Manufacturing saw significant job losses, while service sector employment stagnated. Backlogs of work continued to deplete, highlighting the ongoing demand challenges.

However, inflationary pressures intensified, driven by rising service sector costs, while manufacturing input costs fell slightly. Output prices increased at the fastest rate since August, though still below 2022 peaks. Manufacturers slashed purchasing activity, leading to sharp declines in inventories.

Despite a modest improvement in business confidence, sentiment remained muted, particularly in Germany and France, contrasting with stronger optimism elsewhere in the Eurozone. The update emphasises an uneven recovery, with manufacturing weighing on the overall performance while services provide a glimmer of stability. Today's update puts the Eurozone RPI at 9 and the RPI-P at 7. This means that economic activity in general is running just slightly ahead of forecasts.

Slight deterioration is expected in the December flash from November. The composite is seen down at 48.0 and manufacturing at 45.1. Services is seen flat at 49.5.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The survey, produced by S&P Global uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.