European bond yields rose. French bonds surpassed Greek yields. Stock markets were mixed. The euro weakened. Brent crude oil prices increased due to China’s growth outlook.

European bond yields rose throughout the week, with the 10-year French bonds continuing to yield higher than their Spanish counterparts. France’s creditworthiness has declined, making its risk profile more akin to Greece’s than Germany’s. For the first time, the French 10-year yield closed above Greece’s. The spread between German and French yields is nearing its widest point of this cycle, currently at 87 basis points. Stock markets ended the week with mixed results, with Spain and Portugal gaining over 1.5% and 2%, respectively. The euro weakened against the dollar, closing at 1.0309—its lowest level since 2022—amid ongoing concerns over Europe’s economic outlook. In commodities, Brent crude oil prices rose by 5.24%, driven by a positive economic outlook for China and increased fuel demand following President Xi Jinping’s push to stimulate growth and boost oil consumption.

Eurozone manufacturing contracted for 30 months, with Spain showing resilience, while German unemployment rose amid economic struggles.

The Eurozone manufacturing sector ended 2024 with its 30th consecutive month of contraction, driven by declining demand and job losses. The headline index fell to 45.1 from 45.2, signalling accelerated declines in new orders and output, while input buying and pre-production inventories dropped sharply. Spain and Greece outperformed, with PMIs of 53.3 and 53.2, respectively, while Germany, France, and Italy continued to struggle. Spain's resilience, partly due to limited exposure to China and lower energy costs, helped cushion the impact but could not reverse the regional downturn. Meanwhile, German unemployment rose less than expected in December to 6.1%, but job cuts loom in the manufacturing sector. The labour market is forecasted to face significant challenges in 2025 amid ongoing economic struggles.

The Eurozone manufacturing sector contracted for 30 months, with declining demand and job losses. Spain shows resilience.

The Eurozone manufacturing sector ended 2024 in contraction, marking 30 consecutive months of decline. The headline index fell to 45.1 from November’s 45.2, hitting a three-month low and signalling accelerated contractions in new orders and output. Input buying and pre-production inventories dropped sharply, with stocks falling at one of the fastest rates since 2009. Factory job losses extended to 18 months, though the pace eased slightly. Spain (PMI: 53.3) and Greece (PMI: 53.2) outperformed, while Germany (42.5), France (41.9), and Italy (46.2) reported continued declines, with France’s PMI at its lowest since May 2020. Germany’s manufacturing sector remains deeply challenged, with steep declines in production and persistent slumps in new orders, signalling a prolonged recession. Demand for Eurozone goods fell, with new export orders declining at the softest pace in four months. Input costs stabilized for the first time since August, but firms reduced prices for the fourth consecutive month. Optimism improved, with growth expectations at a four-month high, though still below the series average. Spain’s resilience, contributing 12% of Eurozone GDP, highlights its limited exposure to China (2% of exports) and benefits from lower energy costs, but it alone cannot reverse the region’s industrial downturn.

We anticipate an uncertain first half of 2025, primarily driven by the new tariffs imposed by the United States. Unfortunately, we do not foresee significant improvements during this period.

German unemployment rose less than expected in December, remaining at 6.1%, but job cuts loom as manufacturing struggles amid a weak economic outlook.

German unemployment increased less than anticipated in December, suggesting that the labour market is withstanding the current economic crisis. Unemployment rose by 10,000 people, lower than the expected 15,000 increase, keeping the jobless rate at 6.1%. Given the weak economic outlook, the number of unemployed is forecasted to continue rising this year, potentially surpassing the 3 million mark for the first time in a decade by early 2025. Meanwhile, major industrial companies such as Thyssenkrupp, Bosch, and Schaeffler have either announced or warned of significant job cuts, highlighting ongoing struggles in the manufacturing sector. Despite these challenges, the unemployment rate has remained stable, reflecting the labour market's relative resilience during tough times.

Given the current state of the economy and the ongoing layoffs, we believe the labour market will face significant challenges in 2025. As the effects of the economic downturn continue to unfold, we anticipate a moderate rise in unemployment.