Faltering service sector weighs heavily on Eurozone

(Sharecast News) - The Eurozone economy slipped into contraction in November, a closely-watched survey showed on Wednesday, after services output slumped.

The Hamburg Commercial Bank Eurozone composite PMI output index, which recovered to reach the neutral 50.0 benchmark in October, fell back to 48.3 in November, a 10-month low.

A reading above 50.0 indicates growth while one below it suggests contraction.

Within that, the manufacturing PMI output index fell to 45.1 from 45.8 in October. But the biggest drag came from the services sector, with the PMI business activity index sliding from 51.6 to 49.5.

It is the first time the index has posted below 50.0 since January.

HCOB noted: "Weak demand conditions remained apparent across the Eurozone, with new private sector orders shrinking for a sixth month in a row and at the sharpest pace in the year-to date."

Among individual member states, Germany, France and Italy - the bloc's biggest economies - all saw contractions in business activity, with readings of 47.2, 45.9 and 47.7 respectively.

Cyrus de la Rubia, chief economist at HCOB, said: "Stagflation is a pretty nasty word, especially if you are a central banker, but that is what is hitting the Eurozone right now.

"The European Central Bank is in a tough spot. The economy is struggling and really needs some monetary support. However, inflation is stubbornly high.

"The services sector, which had been holding up the overall economy, is now shrinking. This is bad news for overall growth prospects, especially since this weakness is seen across the top-three euro economies.

"This broad-based decline might be due to consumer uncertainty fuelled by political issues in France and Germany and the threat of trade wars linked to Donald Trump's election."

France's minority government is widely expected to collapse. Politicians on the left and right have vowed to vote against prime minister Michel Barnier in a vote of no confidence on Wednesday after he pushed through a deeply unpopular budget.

Leo Barincou, senior economist at Oxford Economics, said: "The latest survey data continues to underscore the weakness of the Eurozone economy and brings risks to the modest economic recovery we expect in 2025."