In November, business activity in the Eurozone declined again, and both service and manufacturing PMIs entered a shrinking region. New orders fell for six consecutive months and the decline continued to expand, and business confidence fell to its lowest level in a year.

The German service sector is once again weakening, and the decline in commercial activity is the fastest in nine months. The level of commercial activity in the French private sector has declined for the third month in a row, the fastest rate of contraction since January this year; manufacturing output has shrunk sharply to a new low during the year.

On the 22nd, S&P Global and Commerzbank Hamburg (HCOB) announced the preliminary PMIs for the Eurozone, Germany, and France for November.

• The initial value of the Eurozone manufacturing PMI for November was 45.2, the forecast was 46, and the previous value was 46.
• The initial value of the service sector PMI for November was 49.2, the forecast was 51.6, and the previous value was 51.6.
• The initial value of the comprehensive PMI for November was 48.1, the forecast was 50, and the previous value was 50.

In November, the Eurozone manufacturing and service sector output both experienced negative growth for the first time, ending the growth trend since the beginning of the year. Among them, the decline in the manufacturing industry was particularly significant, and it has been declining for 20 consecutive months since October. The decline in the service sector was relatively small.

The slowdown in production activity reflects weak market demand. New orders fell for the sixth month in a row in November, a new low since 2024. Whether in manufacturing or service industries, new businesses have shrunk drastically. New business from overseas also shrank sharply, particularly export orders, which hit a new high since the end of last year.

In terms of prices, the Eurozone's investment cost inflation rate climbed to its highest point in three months in November, but it is still below the overall average for this year. The increase in output prices was lower than the average for the first 11 months of this year. The rise in the cost of services is in stark contrast to the fall in sales prices in the manufacturing industry. Overall, product prices in Germany, France, and other countries in the Eurozone have all risen.

In terms of employment, Eurozone companies have reduced jobs. The number of people employed in the manufacturing industry has shrunk sharply, and the decline hit a new high since August 2020. The number of people employed in the service sector continues to grow, and the growth rate is the fastest in nearly four months. Despite an overall decline in employment in Germany, France and the rest of the Eurozone have seen employment growth.

The company still showed signs of overcapacity, and the number of unfulfilled orders declined again. According to the latest data, the drop in unfinished orders was the biggest since January this year.

Cyrus de la Rubia, chief economist at Commerzbank Hamburg, said:

“In November, the Eurozone economy fell into stagflation: on the one hand, economic activity contracted across the board, and on the other hand, input and output prices rose at an accelerated pace.

The sharp rise in the cost of services, particularly the closely related rise in wages, is the main reason for the acceleration of inflation. Sales prices in the service sector remain high, posing a huge challenge to the ECB. In this context, some central bank members may advocate suspending interest rate hikes in December, but most people may still prefer to cut interest rates slightly by 25 basis points.

Meanwhile, the decline in manufacturing procurement prices narrowed in November. If the euro continues to weaken and the EU's possible countermeasures against the imposition of tariffs on the US take effect, procurement prices may even rise in the next few months.”

After the data was released, traders raised their expectations for ECB easing. Interest rates are expected to be cut by 31 basis points in December and 145 basis points by the end of 2025. The forecast before the data was released was 29 basis points and 139 basis points, respectively.

The euro fell below the 1.04 mark against the US dollar, for the first time since 2022; German 2-year treasury yields fell 5 basis points to 2.06%, the lowest level since October 24.

German private sector business activity contracted more than expected in November

The German service sector is once again weakening, and the decline in business activity in Germany is the fastest in nine months:

• The initial value of Germany's comprehensive PMI for November was 47.3, the expected value was 48.7, and the previous value was 48.6.
• The initial value of the service sector PMI for November was 49.4, the expected value was 51.7, and the previous value was 51.6.
• The initial value of the manufacturing PMI for November was 43.2, the expected value was 43, and the previous value was 43.

Germany's composite PMI output index fell below the boom and bust line of 50 for the fifth month in a row in November, indicating continued economic contraction. Compared to October, the index fell further to 47.3, and the decline in economic activity accelerated.

The number of new orders dropped significantly. Commodity production and manufacturing output slowed markedly in the middle of the last quarter of last year, becoming one of the main factors dragging down the overall economy. Manufacturers generally face a shortage of new orders. Although manufacturing output slowed for the second month in a row and fell to its lowest level since June, judging from historical data, factory output declined relatively slowly.

Due to reduced orders and increased pressure on business operations, further layoffs have to be made, and the employment situation continues to deteriorate. The number of layoffs in the service sector was relatively small, slowing down the overall rate of layoffs, but it still hit a new high in four and a half years.

On the price side, Germany's mid-term inflationary pressure increased in the fourth quarter. In the service sector in particular, as operating costs have risen significantly, companies have had to raise service prices in order to maintain profits, and the increase has reached a new high in recent months. This indicates that the development of the service sector has increased inflation to a certain extent.

However, the manufacturing industry is facing weak demand. Weak customer demand, combined with pressure on the entire supply chain, has led to a further sharp drop in manufacturers' ex-factory prices and procurement costs, and even an accelerated downward trend.

Cyrus de la Rubia said:

“Although the decline in manufacturing has abated, there is still a long way to recover. The wave of layoffs among commodity manufacturers is intensifying, in line with recent drastic cost cuts by many automobile companies and suppliers. Export orders have also shrunk again.

However, the situation may change in the next few months, as the threat of the US imposing tariffs on exported automobiles and machinery may prompt some orders to be brought forward to avoid additional tariff costs.”

French manufacturing output shrank sharply, and the contraction of the service sector accelerated to the fastest rate since January

The level of commercial activity in the French private sector has declined for the third month in a row, the fastest rate of contraction since January this year; manufacturing output has shrunk sharply, hitting a new low during the year.

• The initial value of France's service sector PMI for November was 45.7, the forecast was 49, and the previous value was 49.2.
• The initial value of the manufacturing PMI for November was 43.2, the expected value was 44.5, and the previous value was 44.5.
• The initial value of the comprehensive PMI for November was 44.8, the expected value was 48.3, and the previous value was 48.1.

In the middle of the fourth quarter, the economic situation in the French manufacturing and service sectors deteriorated further. Manufacturing output contracted sharply to a new low during the year, mainly driven by the automotive, construction and cosmetics industries, as well as weak international markets. In the service sector, political and economic uncertainty has led to insufficient consumer confidence, and service sector activity has decelerated markedly, the fastest since January this year.

In November, the number of new orders from French private companies declined further, and industry sales were generally poor. Among them, orders from abroad declined sharply, which had a significant negative impact on overall demand. The volume of new export business showed the fastest decline since May 2020. Geopolitical uncertainty and weakening order inflows from the US are the main reasons for this situation.

According to the latest survey, the volume of unfinished business has been declining for 16 consecutive months. Furthermore, the rate of decline in orders reached the fastest level in four years, and pending orders in both manufacturing and service industries declined significantly.

On the price side, in November, companies across France faced further increased cost pressure. The growth rate of operating costs hit a three-month high, but compared to the overall average, the rate of inflation is relatively slow. Due to rising wage costs, overall production costs have risen. Despite this, active price increases by service providers offset this trend to a certain extent. Competitive pressure caused factory ex-factory prices to drop at the fastest rate in 15 months.

Notably, French companies generally expect economic activity to continue to weaken for some time to come, and this trend is likely to continue until 2025. This pessimism can be traced back to May 2020, when the company's output expectations for the next 12 months turned negative for the first time.

Tariq Kamal Chaudhry, economist at Commerzbank Hamburg, said:

“The French Ministry of Industry is facing serious challenges. In November of this year, the manufacturing output index fell to the lowest point of the whole year, showing the overall weakness of the industry. According to the survey, industries such as automobiles, construction, and cosmetics are particularly difficult, and domestic and foreign orders have all shrunk. At the same time, despite weak market demand, manufacturers' investment costs have risen sharply, while product sales prices are falling, further increasing the operating pressure on enterprises.

The service sector continues to shrink. The situation of French service providers is not optimistic, and they are facing serious challenges just like the industrial sector. The findings suggest that the decline in demand is due to the current complex political and geopolitical situation.”