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The December PMI data painted a mixed picture for the European economy, with a stronger-than-expected performance overall. Notably, the Services sector returned to expansion territory, signaling some resilience. However, the Manufacturing sector remained deeply mired in contraction, with output declining at its sharpest pace in 2024. Despite the slight improvement in Services, all major metrics lagged recent highs, leaving the Composite PMI in contraction territory at 49.6.

Heading into January, the outlook remains bleak. The Sentix Investor Confidence Index highlights persistent concerns, describing the European economy as being at risk of “freezing up permanently.” The Sentix headline reading fell to its lowest level since November 2023, driven largely by deteriorating conditions in Germany, the region’s largest economy. This pessimistic backdrop suggests that the upcoming PMI release may echo December’s trends, with only marginal shifts in key figures expected.

Headwinds Persist Amid Geopolitical Uncertainty

The European economic landscape faces several headwinds as 2025 begins, including ongoing concerns among businesses over the potential policy direction under the new U.S. administration and the specter of trade tariffs. These uncertainties are adding to the structural challenges already weighing on the region, particularly within its industrial base.

For January’s PMI release, forecasts suggest minimal changes across the board:

• Manufacturing PMI: Expected to inch higher to 45.3 from 45.1, remaining firmly in contraction.
• Services PMI: Projected to edge slightly lower to 51.5 from 51.6, maintaining modest expansion.
• Composite PMI: Expected at 49.7 only marginally up from 49.6, staying just below the critical 50 threshold that separates growth from contraction.

Market Implications

While the Services sector’s resilience offers some hope, the continued weakness in Manufacturing signals that the broader economic recovery remains fragile. With Germany at the center of Europe’s challenges, any upside surprise in the PMI data could be overshadowed by lingering concerns over trade policy and global demand. Markets are likely to focus on whether the Composite PMI can reverse its recent decline or if the data will reinforce fears of stagnation in the eurozone.

As Europe navigates these economic headwinds, January’s PMI data will be a crucial indicator of whether the region can build momentum or if 2025 will begin much like the latter half of 2024—mired in uncertainty and uneven growth.For the very short term trader a surprise beat can give the EUR a short term lift if the print comes in above market’s expectations.

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