The Eurozone returned to modest growth in January 2025, with the flash composite PMI reaching 50.2, about 0.6 points above consensus, reaching its highest in five months, signalling a slight expansion in private sector activity after six months of contraction. Services led this recovery, with the service PMI at 51.4 (a point below consensus), reflecting continued albeit slower growth, while the manufacturing PMI rose to 46.1, an eight-month high, though still in contraction territory.

Demand remained weak, with new orders falling for the eighth month. However, the decline slowed, particularly in international markets, where export orders dropped at the softest rate in six months. Employment neared stabilisation as service sector job growth offset manufacturing job cuts, though staffing levels declined slightly overall.

Inflation surged as input costs rose at their fastest pace since April 2023, driven by steep increases in service costs. Output prices followed, rising at a five-month high, with Germany leading this trend, while France recorded its first price drop in nearly four years.

Business confidence remained cautiously optimistic, with manufacturing sentiment improving to a seven-month high. However, ongoing demand weakness, particularly in manufacturing, and mixed trends in key economies like Germany and France highlight the Eurozone's fragile recovery entering 2025. The latest update takes the Euro area RPI and RPI-P to minus 19 and minus 33 respectively. This means that economic activities within the area are well behind market expectations.

Manufacturing contraction continues in January while services stage a modest recovery. The manufacturing flash is expected at 45.3, services at 51.5 and composite at 49.6. That compares with manufacturing at 45.1, services at 51.6, and composite at the same 49.6 in December.

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.