Euro zone growth slows in December but finishes quarter strongest since 2023

The euro zone composite PMI eased to 51.5 in December, indicating slower monthly growth, while the fourth-quarter average of 52.3 was the strongest since Q2 2023.

The euro zone economy expanded at a slower pace in December but closed 2025 with its strongest quarterly growth in over two years, as services momentum offset a contraction in manufacturing. HCOB's final composite Purchasing Managers' Index, compiled by S&P Global, fell to 51.5 in December from November's 52.8, while the fourth-quarter average was 52.3, the highest since the second quarter of 2023. The bloc recorded monthly expansion throughout 2025, a streak not seen since 2019, even as U.S. tariffs on European imports were a headwind. Economists cited continued strength in services and weaker factory activity as the main influences on the data. What we know: - The HCOB composite PMI eased to 51.5 in December from 52.8 in November. - The fourth-quarter average PMI was 52.3, the strongest since Q2 2023. - Manufacturing activity contracted while services continued to expand; the services business activity index fell to 52.4 from November's 53.6. - New orders grew for a fifth month but at the slowest pace since September, with factory orders falling faster and services sales softening. - Input cost inflation rose to a nine-month high across both sectors, while output price inflation was unchanged from November. - Spain's composite index improved to a two-month high, Germany's expansion slowed to a four-month low, Italy's activity barely grew, and French private sector activity stagnated; overall employment growth was marginally higher amid ongoing manufacturing job cuts. Summary: Services kept the euro zone in steady expansion through 2025, producing the bloc's strongest quarterly PMI since mid-2023, while manufacturing weakness moderated momentum. Hamburg Commercial Bank economist Cyrus de la Rubia said GDP growth likely accelerated and forecast moderate service-sector growth in 2026, noting potential gains for manufacturing from demand for defence equipment and construction machinery. He also highlighted that rising cost inflation in services is being monitored closely by the European Central Bank and is a factor in why the ECB has not implemented further rate cuts.