Business activity in the euro zone cooled more than anticipated at the close of 2025. This was due to deepening contraction in the manufacturing sector, and slowing expansion in the dominant services industry, according to the latest survey results.
The common currency area remained notably resilient through most of the year, weathering headwinds such as increased U.S. tariffs and persistent global uncertainties. However, the HCOB Flash Eurozone Composite PMI, compiled by S&P Global, slipped to a three-month low of 51.9 in December, down from a 52.8 in November. The reading underperformed a Reuters poll forecast of 52.7.
Despite the slowdown, 2025 marks the first full calendar year since 2019 with composite PMI remaining above the 50.0 threshold that distinguishes expansion from contraction.
Manufacturing output contracted for a second month, with the sector’s PMI falling to 49.2—its lowest since April and missing the Reuters forecast of 49.9. The manufacturing output index, which contributes to the broader composite measure, declined for the first time in 10 months, and new orders dropped at the fastest pace since February.
Services, while still supporting overall growth, also showed signs of fatigue. The services PMI eased to 52.6 from November’s 53.6 and missed the predicted 53.3.
Business sentiment about future activity slipped to its lowest since May, though companies continued to expand their workforces at a faster rate.
Rising price pressures presented a mixed picture: input costs increased at the fastest clip since March, and output prices also climbed at a sharper pace. Meanwhile, headline inflation recently edged higher but has hovered around the European Central Bank’s (ECB) 2% target. According to a separate Reuters poll, the ECB is projected to keep interest rates on hold at least through 2027.
