Eurozone December final services PMI 51.6 vs 51.4 prelim

• Prior 49.5
• Composite PMI 49.6 vs 49.5 prelim
• Prior 48.3

The readings are a marginal improvement to the initial estimates but overall, it still marks a slight contraction in euro area business activity in December. A worrying point is that price pressures in the services sector is seen rising at the balance, and that threatens to keep the disinflation process on a more bumpy path in the months ahead. HCOB notes that:

“At the ECB press conference, President Lagarde reiterated that services inflation is still too high. December’s PMI survey
for the services sector confirm this, showing costs rising even more sharply than the previous month, likely due to higher
wages. Some of these higher costs have been passed on to customers, leading to a bigger increase in selling prices. For
monetary policy, this means the central bank should remain cautious and make only small interest rate cuts in the first
quarter of 2025.

“Looking back, 2024 wasn’t such a bad year for the service sector. The first half started moderately, growth then weakened,
but it seemed to bounce back a bit towards the end. Services employment grew throughout the year, although the increase
in December was only small. The steady decline in the order backlog is worrying, but it hasn’t completely plummeted.
Service providers have maintained their confidence, with future business prospects largely positive and even improving in
December, despite the index measuring sentiment being below the long-term average.

“The December PMI data doesn’t exactly lay a fantastic foundation for a service sector boom in 2025, but at least incoming
business has stopped falling and the decline in order backlogs has softened. Service providers can count themselves lucky
that, unlike manufacturers, they’re not directly affected by the threat of US tariffs. Overall, they should help ensure that
industrial weakness doesn’t completely drag down the entire economy in 2025.”

This article was written by Justin Low at www.forexlive.com.