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Prior 53.6Composite PMI 51.5 vs 51.9 prelimPrior 52.8Both the services and composite readings are three-month lows as overall business activity in the euro area eased towards the end of 2025. A slower rise in demand for euro area goods and services was the main headwind on the month. Meanwhile, there were contrasting fortunes on price developments especially with that seen in Spain (hot) and France (cold). But at the balance, input cost inflation moved up to a nine-month high. So, that reflects some uptick in price pressures at the sector level but the pace of increase in output charges was unchanged from November at least.HCOB notes that:“The eurozone services sector has grown for seven months in a row. The pace of expansion slowed in December, but
overall, the picture looks good. Companies have even increased their staffing levels more strongly, and new business
indicates that they remain on a growth path. Overall, the recovery in services gained momentum in the fourth quarter, which
is a good basis for starting the new year with confidence.
“The European Central Bank continues to monitor service inflation very closely, ECB President Christine Lagarde said at the
interest rate press conference in mid-December, and rightly so, because cost inflation in this sector rose again in December.
This in turn means that wages, which are the largest cost item for most service providers, will continue to increase at an
above-average rate. This development, which was also accompanied by slightly higher inflation in sales prices, is, in our
view, the most important reason why the ECB has not implemented any further interest rate cuts and does not appear to be
planning any.
“The composite PMI averaged a visibly higher level in the last three months of the year than in the third quarter. Against this
backdrop, GDP growth is likely to have accelerated. The decisive impetus is coming from the service sector, while
manufacturing has slowed down. In 2026, the service sector should remain on a moderate growth path. The manufacturing
sector is likely to benefit from higher demand for defence equipment and construction machinery, which are needed, among
other things, to implement infrastructure projects in Germany. As a result, economic growth of well over 1 percent should be
possible again, but is certainly not overwhelming.”
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
The recent drop in the Composite PMI to 51.5 signals a slowdown in euro area business activity, and here’s why that’s crucial for traders right now: With both services and composite readings hitting three-month lows, this could indicate a weakening economic outlook, impacting the euro’s strength against major currencies. A slowdown in demand for goods and services suggests that inflationary pressures might ease, which could influence the European Central Bank’s (ECB) monetary policy decisions. Traders should keep an eye on the euro against the dollar, particularly if the euro falls below key support levels. If the PMI continues to decline, it could lead to a bearish sentiment in the forex market, prompting institutions to adjust their positions accordingly. Watch for reactions in related markets, like commodities, where a weaker euro could affect pricing dynamics. On the flip side, if the PMI rebounds in the coming months, it could reignite bullish sentiment, making it essential to monitor upcoming economic data releases closely. The immediate focus should be on the next PMI report and how it aligns with market expectations.
📮 Takeaway
Watch the euro closely; a drop below key support levels could signal further bearish moves, especially if upcoming PMI data continues to disappoint.
