Eurozone Investor Confidence Plummets to Lowest Level in Over a Year in January
According to a survey conducted on Monday, investor sentiment in the Eurozone fell to its lowest level in over a year in January. Germany's recessionary economy continues to drag down the region.
The Sentix index for the Eurozone declined to -17.7 in January, down from -17.5 in December, marking the lowest level since November 2023. Despite this drop, the decline was less than analysts' forecast of -18.0.
The survey, which involved 1,121 investors between January 2-4, indicated a potential long-term slowdown in the Eurozone economy and highlighted the significant burden posed by Germany's struggling economy. Forward-looking expectations showed a slight improvement, rising to -5.0 in January from -5.8 in December.
However, this gain was overshadowed by a more negative outlook on the current situation. The current situation index dropped to -29.5 in January, down from -28.5 in December, reaching its lowest point since October 2022.
The Eurozone economy closed 2024 in a fragile state. A survey showed that overall activity contracted for the second consecutive month in December. A modest recovery in the services sector was insufficient to offset a more pronounced decline in the manufacturing sector.
The final composite Purchasing Managers' Index (PMI) for the region, compiled by S&P Global and considered a reliable measure of overall economic health, rose to 49.6 in December; this was up from 48.3 in November. While this figure was slightly above the forecast of 49.5, it remained below the boundary between growth and contraction at 50. Data collection was conducted earlier than usual due to the holiday season, with the survey taking place between December 5-18.
The main index rose with the recovery in the region's dominant services sector, with the services PMI increasing from 49.5 in November to 51.6. This growth was counterbalanced by a more pronounced decline in manufacturing activity. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated that the December PMI data did not create a strong foundation for a boom in the services sector in 2025, although the decline in incoming work and order backlogs had softened.
A European Central Bank (ECB) study released on Monday suggested that the extraordinary resilience of the Eurozone labor market is likely to weaken as unique factors contributing to its strength start to diminish. However, serious weakness is not expected. Despite the economy stagnating last year, firms continued hiring, resulting in an unemployment rate of 6.3%, a record low.
The ECB noted that employment had actually exceeded real GDP growth since 2022, a trend that contradicted historical patterns. This exceptional performance was attributed to rising profit margins, allowing firms to retain their employees for longer periods despite declining revenues.
However, real wages are now rising and aligning with historical trends, while energy prices, a significant factor in costs, are stabilizing. This situation reduces the mismatch between production and employment. The ECB indicated that labor hoarding peaked in the third quarter of 2022, and firms' capacity or willingness to retain employees is gradually decreasing. According to the ECB, the Eurozone labor market is expected to return to a level more in line with historical correlations to production.