The eurozone ends 2024 with economic contraction and challenges in manufacturing.

Economic activity in the eurozone ended 2024 with a note of contraction, a phenomenon that has been particularly pronounced in the two largest economies in the region: Germany and France. According to the latest data from the PMI (Purchasing Managers' Index), the services sector in the eurozone reached a score of 51.4 in December, compared to 49.5 in November. This slight increase suggests a recovery in this sector, although the overall outlook remains bleak. The manufacturing PMI, on the other hand, remained at the same level of 45.2 as in November, indicating that the industry continues to face serious difficulties. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, emphasized that while the end of the year is more encouraging than expected, the reality is that the manufacturing sector "remains mired in a deep recession." This duality in sector performance suggests a fragmented eurozone economy, where growth in services is not sufficient to offset the decline in manufacturing. The labor situation also reflects a concerning picture. During December, companies in the eurozone, affected by a decrease in new orders and commercial activity, began to reduce their employment levels for the fifth consecutive month. This reduction has been more pronounced than in previous years, marking the strongest adjustment in four years. In particular, the manufacturing sector experienced a notable decrease in staffing, while the services sector barely managed to maintain employment, with significant declines in Germany and France. German data shows a slight increase in the composite PMI, which rose to 47.8 from 47.2 in November. However, this improvement is primarily due to the rebound in the services sector, which managed to reach 51 points from a previous 49.3. In contrast, the German manufacturing PMI stood at 42.5, indicating a significant contraction that continues to affect the country's economy. France, for its part, also saw an increase in its composite PMI, which reached 46.7 in December, a slight advance from 45.9 in November. This increase was driven by the services sector, which managed to reach 48.2 points. However, the situation in the manufacturing sector is alarming, as the PMI plummeted to 41.9, its worst figure in 55 months. This sharp decline reflects the serious difficulties facing the industry in the country. Cyrus de la Rubia warned that political uncertainty in Germany and France is hindering the implementation of crucial reforms that could help revitalize economic growth. The lack of a clear and decisive approach in both nations contributes to the persistent weakness in their economies and affects the overall health of the eurozone. The relationship between economic activity and political uncertainty is clear: when governments fail to provide a stable and predictable environment, companies tend to curb their investments and labor adjustments. Consequently, unemployment could continue to rise if current conditions persist. As a new year begins, the eurozone faces significant challenges. The need for structural reforms is evident, especially in key economies like Germany and France, where the lack of growth can have repercussions throughout the region. The continued contraction of the manufacturing sector and the stagnation of employment indicate that, although there are signs of improvement in the services sector, the path to sustained recovery still seems long and complicated. The situation raises crucial questions for the immediate future of the eurozone: How will governments address these challenges? What measures will they take to reinvigorate the manufacturing sector and restore confidence in their economies? As the largest economies in the region grapple with uncertainty, the rest of the eurozone is likely to be watching their moves in 2025, hoping that growth will finally find its way back.