Investing.com -- Morale among investors in the euro zone dipped to its lowest level in more than a year in January, according to a Monday survey. Germany’s recessionary economy continues to weigh down the bloc.
The Sentix index for the euro zone fell to -17.7 in January, down from -17.5 in December, marking the lowest level since November 2023. Despite this drop, the decline was not as steep as the -18.0 forecast by analysts.
The survey, which gathered responses from 1,121 investors between January 2 and January 4, noted a potential long-term slowdown in the euro zone economy, with Germany’s struggling economy acting as a significant burden. Expectations for the future saw a slight improvement, rising to -5.0 in January from -5.8 in December.
However, this gain was overshadowed by a more negative view of the current situation, which dropped to -29.5 in January from -28.5 in December, the lowest since October 2022.
The euro zone economy closed out 2024 in a vulnerable condition, with a survey showing that overall activity contracted for the second consecutive month in December. A modest recovery in the services industry was insufficient to counterbalance a more pronounced downturn in manufacturing.
The final composite Purchasing Managers’ Index (PMI) for the bloc, compiled by S&P Global and considered a reliable measure of overall economic health, increased to 49.6 in December from 48.3 in November. This figure was slightly above the preliminary estimate of 49.5 but remained below the threshold of 50, which separates growth from contraction. The data was collected earlier than usual due to the holiday season, with the survey conducted from December 5 to December 18.
The headline index was lifted by a rebound in the bloc’s dominant services sector, with its PMI rising to 51.6 from 49.5 in November. This growth was offset by a more significant decline in manufacturing activity. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that while December’s PMI data did not set a strong foundation for a service sector boom in 2025, the decrease in incoming business and order backlogs has softened.
Research from the European Central Bank (ECB) released on Monday indicated that the euro zone labor market’s exceptional resilience is likely to fade as the unique factors contributing to its strength begin to wane. No drastic weakening is expected, however. Despite the bloc’s economy stagnating over the past year, unemployment is at a record low of 6.3% as firms continue to hire.
The ECB noted that employment has actually exceeded real GDP growth since 2022, a trend that defies historical patterns. This exceptional performance was attributed to rising profit margins, which allowed firms to retain their workers longer than usual, despite decreasing revenues.
However, real wages are now increasing and aligning with historical trends, and energy prices, a key factor in costs, are stabilizing. This is reducing the discrepancy between output and employment. The ECB stated that labor hoarding reached its peak in the third quarter of 2022 and firms’ capacity or willingness to retain their workers is slowly diminishing. The euro area labor market is expected to return closer to its historical correlation with output, according to the ECB.
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