Business sentiment within the Eurozone took an unexpected turn for the worse in December, according to recent data.
Surprisingly, the S&P Global Purchasing Managers' Index dropped by 0.6 points compared to November, settling at 47.0 points. This sudden decline contradicted analysts' predictions for an increase to an average of 48.0 points.
The service sector saw a downturn in sentiment, while the industrial sector remained relatively stagnant at a low level. This meant that the figures below 50 points continued to suggest an economic contraction.
The unexpected drop in business sentiment in the Eurozone's corporate sector was likely due to various factors. The PMI revealed that new orders fell at their weakest pace since May, indicating a decline in demand for manufactured goods. Moreover, both output and new orders showed a weaker trend, suggesting a contraction in overall manufacturing activity.
Additionally, employment levels continued to decline, with companies reducing their workforce at a faster pace. Furthermore, input costs increased for the first time since August, due to higher raw material or labor costs. Despite this, output charges remained unchanged as businesses opted not to pass these costs onto customers.
The broader economic environment, including structural challenges in the industrial sector, potential higher tariffs from the US, and slowing Chinese demand, also contributed to the overall pessimism in the business sector.
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(Enrichment Data: The aforementioned factors collectively contributed to the HCOB Eurozone Manufacturing PMI plunging to 45.1 in December, signaling a contractionary trend in the manufacturing sector.)
