The PMI indicator for the manufacturing sector fell further into contraction territory in November, down from 46 to 45.2. In particular, the employment index hit its lowest level since August 2020 (45.3). The momentum in services also reversed, with the PMI indicator slipping back below 50 in November, to 49.2. In addition, consumer confidence deteriorated in November (-1.2 points to -13.7, according to the European Commission's flash index) and only marginally increased in the second half of the year.
A turnaround in the labour market now seems likely in 2025, given the deterioration in business surveys, in both the manufacturing and services sectors, and the series of restructuring announcements occurring in recent weeks. However, this deterioration would be mitigated by the boost for growth provided by rising real wages and the gradual decline in interest rates, which would continue until mid-2025.
Negotiated wages in the eurozone surprised on the upside in the third quarter, jumping from 3.5% to 5.4% year-on-year. Nevertheless, this upturn is buoyed by and limited to Germany (annual growth in negotiated wages in France, Italy and Spain stabilised below 3.5% in Q3). Moreover, these results diverge from the Indeed aggregate wage index for the eurozone, which showed an increase of only 3.25% y/y in October. Harmonised headline inflation exceeded the 2% mark in October, and is expected to have continued strengthening slightly by the end of the year, due to base effects in energy.
Our Nowcast for Q4 2024 currently stands at 0.3% q/q, which is in line with our forecast. Growth in the euro area is expected to hit an annual average of 0.8% in 2024, with a relatively favourable carry-over effect of 0.5% for 2025. While the risks to growth in the euro area seem to be fairly clearly tilted to the downside, our central scenario remains, at this stage, one of strengthening activity in 2025.
Article completed on 25 November 2024
