Eurozone private sector activity continued to grow in January, matching the modest pace recorded in December, according to the latest HCOB Flash Eurozone Composite PMI figures published on Friday. The Composite PMI Output Index held steady at 51.5, extending the current expansion streak to 13 months, though growth remained at the joint-slowest rate since September.
Momentum in the services sector eased, with the index slipping to a four-month low of 51.9 from 52.4 in December. By contrast, manufacturing output moved back into expansion at 50.2 after contracting in the previous month. The headline Manufacturing PMI rose to 49.4 from 48.8, a two-month high but still consistent with overall contraction.
Price signals showed renewed pressure. Input costs increased at their fastest pace in almost a year, while output price inflation climbed to its strongest level since April 2024, driven mainly by services. Despite this, analysts at ING said that “Even though inflation has remained remarkably benign in recent months despite all the economic turmoil, the PMI does indicate increasing price pressures again. That being said, the moves are not nearly enough to sway the ECB from its expectations to hold rates for the foreseeable future,” according to ING analysts.
Demand conditions were mixed. New orders rose for a sixth consecutive month, although growth slowed to its weakest pace since September 2025. Export orders continued to fall, though the rate of decline moderated compared with December.
Labour market trends softened, with eurozone firms cutting employment for the first time in four months. The contraction was concentrated in Germany, where job losses were the most pronounced since November 2009, excluding the pandemic period. Employment continued to rise in France and across the rest of the currency bloc.
Business sentiment improved notably. Overall confidence climbed to a 20-month high in January, while manufacturing optimism reached its strongest level in nearly four years. Sentiment strengthened in both Germany and France but edged lower in other eurozone countries.
Commenting on the data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, described the recovery as “rather feeble” and said the survey points to “more of the same in the months to come.” He added that rising services inflation could support the European Central Bank’s decision to keep interest rates unchanged, with some policymakers potentially favouring rate increases over cuts.
Regionally, the data suggested that Germany began 2026 on a growth footing, while France recorded a month-on-month contraction in output, which may be linked to political challenges surrounding the approval of the 2026 budget.
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