Eurozone PMI hit a 30-month high in November. Economic expansion supported the ECB's suspension of interest rate cuts

The Zhitong Finance App learned that a survey released on Wednesday showed that business activity in the Eurozone grew at the fastest rate in two and a half years, and the strong service sector offset the weak trend in the manufacturing industry. The final value of the November HCOB composite PMI compiled by S&P Global was revised to 52.8, a 30-month high, indicating that the private sector's economic growth momentum was strong, higher than the 52.4 in October and the expected 52.4. This is the sixth consecutive month of increase. A PMI index above 50.0 indicates an increase in economic activity, while below this level indicates a contraction in the economy.

Cyrus de la Rubia, chief economist at Commerzbank Hamburg, said: “The Eurozone service sector has shown clear signs of recovery. The strong performance of the service sector was enough to even offset the weakness of the manufacturing sector, which meant that economic output in the Eurozone grew slightly higher in November than last month.”

The Eurozone service sector PMI rose to 53.6 from 53.0 in October to the highest level since May 2023, and the growth rate of new business volume was the fastest in 18 months. The manufacturing industry, on the other hand, showed signs of weakness, with factory production growth falling to its lowest level in nine months and a slight drop in new orders.

Most of the Eurozone countries surveyed have achieved economic expansion. Among them, Ireland performed the most prominently, and its economic growth rate reached the highest level in three and a half years. The Spanish economy maintained a strong growth trend despite a slight slowdown, while Italy achieved the strongest growth since April 2023. In France, private business activity expanded for the first time in 15 months, while economic activity in Germany slowed from a 29-month high in October.

Second, employment in the Eurozone continued to increase in November, but the pace of employment growth slowed to a lower level. The service sector has maintained its recruitment momentum, while manufacturing companies are laying off workers at their fastest rate since April. Business confidence has improved slightly, but is still below the long-term average, which indicates that companies are still cautious about the future situation.

In terms of inflation, input costs are rising at their fastest rate in eight months, due to another rise in procurement costs for manufacturers and an acceleration in service sector expenses. However, the rate of increase in fees charged by companies to customers has slowed, and the increase in output prices has also fallen to its lowest level in six months.

De la Rubia said: “As far as sales prices are concerned, the service sector inflation rate, which the ECB is particularly concerned about, has declined significantly again. But in general, the ECB's unequivocal stance of not changing interest rates at the upcoming central bank meeting may be supported.”

However, the Eurozone's harmonized CPI for November, which was previously announced, unexpectedly rebounded slightly to 2.2% year on year (close to the ECB's 2% target). More importantly, the stubbornness of service prices and the limited slowdown in wage growth indicate that domestic price pressure persists, which supports the ECB's position to maintain current interest rates to control inflation.

Recent statements by ECB officials generally suggest that they are satisfied with the current level of interest rates and consider the policy “basically neutral.” The minutes of the meeting showed that the strong macroeconomic outlook strengthened the market's confidence that the ECB would maintain the current interest rate level and ruled out the possibility of further interest rate cuts in the short term. The market currently expects the ECB to remain “on hold” for the next few months, and discussions on interest rate cuts may not resume until the first half of 2026.