Eurozone private sector activity expands for second month

The HCOB Eurozone Composite PMI stood at 50.2 in February 2025, remaining unchanged from the previous month, indicating a second consecutive period of muted growth in the Eurozone’s private sector activity, though slightly below market expectations of 50.5.

Eurozone private sector activity expands for second month

The growth was mainly driven by the services sector, although its expansion slowed (50.7 vs 51.3 in January), while manufacturing activity continued to contract, though at the slowest pace in nine months (47.3 vs 46.6). This divergence between services and manufacturing growth highlighted the ongoing challenges faced by the Eurozone's industrial sector, with many manufacturers struggling to gain momentum amid weak demand and rising input costs.

New orders contract

New orders across the region contracted for the ninth consecutive month, underscoring the persistently weak demand levels within the bloc. This continued decline in order volumes reflected caution among businesses, many of which cited challenges ranging from geopolitical tensions to the impact of inflation on consumer spending. Despite the overall weakness in new orders, output was slightly higher, driven by firms working through their backlog of unfulfilled orders at the sharpest pace in three months. This backlog depletion was one of the few bright spots in the data, suggesting that firms are still managing to maintain some level of production despite the broader demand challenges.

Manufacturing employment sees a notable decline

However, the ongoing weakness in new contracts and the uncertain economic backdrop prompted many businesses to scale back their operations. Manufacturing employment saw a notable decline, with headcounts falling at the fastest rate since July 2012, excluding the Covid-related shock. This sharp contraction in the manufacturing workforce reflected the sector’s struggle to cope with weakening demand and the resulting pressures on profitability. Service sector firms were also cautious in their hiring decisions, contributing to overall employment reductions across the region. On the price front, input costs rose at the fastest pace in ten months, driven by higher energy and raw material costs, further squeezing profit margins. This increase in input costs prompted businesses to raise their output charges, passing on some of the inflationary pressures to consumers, though the pace of price increases was more subdued compared to earlier in the inflation cycle.

Possible outlook

Looking ahead, optimism among businesses dipped to a three-month low, with firms expressing concerns over the region’s economic outlook. The combination of subdued demand, rising costs, and geopolitical uncertainty weighed heavily on sentiment, suggesting that the Eurozone may continue to face a challenging economic environment in the near term. The outlook for the private sector will likely depend on developments related to energy prices, trade relations, and fiscal policies, with many firms hoping for clearer guidance from policymakers to help navigate these turbulent conditions.