The European Central Bank published findings from ECB staff contacts with 82 leading non-financial companies operating in the euro area, based on exchanges held between 6 and 14 January 2025. Company feedback pointed to subdued business momentum at the turn of the year, with flat or declining manufacturing output alongside more resilient growth in services, and little expectation of a substantial change in the short term. Manufacturing weakness was increasingly characterised as structural, linked to higher energy and labour costs, an inhibitive regulatory environment and stronger import competition, weighing on investment in machinery and equipment and prompting some firms to plan capacity reductions in the euro area. Services growth was supported by consumer spending and demand for business services focused on efficiency and business model transformation, including rapidly growing demand for AI and cyber security. Consumer-facing sectors reported continued prioritisation of services over goods, “trading down” in food retail, stronger competition from Chinese online retailers in non-food, and ongoing strength in travel and tourism. Construction remained constrained by weak housebuilding amid high costs and long approvals, while non-residential activity such as data centres and green and telecoms infrastructure was still growing, and residential construction was expected to recover over the course of 2025. The employment outlook stayed weak as firms prioritised efficiency, while prices were described as rising moderately with a slight pick-up on average, particularly in services, and contacts expected wage growth to moderate from 4.3% in 2024 to 3.6% in 2025, with respondents providing 2026 figures anticipating 2.7% on average. In a scenario where the incoming US administration raised tariffs to the full extent suggested, around half of manufacturing firms expected euro area activity to be negatively affected, though some cited “local for local” production models as a mitigating factor and flagged trade diversion risks if US tariffs were disproportionately targeted at China. On prices, contacts tended to expect downward pressure in the euro area absent EU protective measures, while a broader tariff war was seen as more likely to raise costs and prices. Shipping constraints were also noted due to rerouting away from the Red Sea and activity being brought forward ahead of an earlier-than-usual Chinese New Year, feared US east coast dock strikes and potential US import tariffs.
European Central Bank 2025-01-31
European Central Bank contacts with 82 companies signal subdued euro area momentum with structural manufacturing weakness and moderating wage growth
The European Central Bank's research shows subdued business momentum in the euro area, with flat or declining manufacturing output and resilient services growth. Manufacturing faces challenges from high energy and labor costs, regulatory hurdles, and import competition, while services benefit from consumer spending and demand for efficiency-focused business services. The employment outlook remains weak, with moderate price rises and expected wage growth moderation from 4.3% in 2024 to 3.6% in 2025.