Eurozone’s final PMI Services reading fell to 49.5 from October’s 51.6, marking a 10-month low. Composite PMI followed suit, dipping to 48.3 from 50.0, also the lowest in 10 months, indicating that the region’s private sector is contracting.

Among major economies, Ireland stood out as a bright spot with its Composite PMI hitting a 30-month high at 55.2. Conversely, Germany and France—the bloc’s economic heavyweights—reported Composite PMI levels of 47.2 and 45.9, respectively,.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, described Eurozone’s predicament as a case of “stagflation,” a challenging scenario for central bankers.

“The economy started shrinking while the PMI price components went up for the second month in a row,” he noted. Inflation pressures remain high, driven largely by the services sector, and the weaker Euro adds to concerns about rising import costs in the coming months.

ECB finds itself in a precarious position ahead of its December 12 policy meeting. While the sluggish economy could benefit from monetary easing, inflationary pressures, exacerbated by substantial wage growth in Q3, limit its room to maneuver.

De la Rubia expects ECB to avoid aggressive action, likely opting for a cautious 25bps rate cut.

Full Eurozone PMI services final release here.

Austrian ECB Governing Council member Robert Holzmann indicated in an interview with Austria’s Oberösterreichische Nachrichten newspaper that a rate cut at next week’s meeting is possible, but ruled out a significant reduction.

He stated that while the likelihood of a reduction “isn’t zero,” the cut would be “moderate, not very strong,” as current data do not strongly support such a move.

Holzmann mentioned that a 25bps cut is “conceivable,” but emphasized “not more” than that. Though, no decision has been made and it will depend on the “final data we receive.”

He acknowledged that inflation developments have been moving in the “right direction,” but recent “deviations to the upside” have emerged.

Additionally, he expressed concern over a “row of challenges” facing the economy, highlighting that the geopolitical environment suggests price increases are “more likely than unlikely.” Contributing factors include rising oil and energy prices and potential impacts from policies under President-elect Donald Trump.

ECB Executive Board Member Piero Cipollone highlighted the potential economic implications of US tariffs on the Eurozone, emphasizing their dual impact on growth and inflation.

Cipollone noted that tariffs would weaken the Eurozone economy by reducing consumption, thereby lowering pressure on prices.

He pointed out that Chinese producers, excluded from the US market, might redirect their goods to Europe, potentially offering them at discounted prices.

On energy, Cipollone pointed out that while oil imports could become more expensive due to a stronger Dollar, US policies aimed at supporting domestic energy production could increase supply, offsetting price pressures.

“All this put together makes me think that we will have a reduction in growth but also a reduction in inflation,” Cipollone concluded.

Latvia’s ECB Governing Council member Martins Kazaks indicated his support for an interest rate cut at next week’s ECB meeting, citing the belief that inflation problem “will soon end.”

However, Kazaks acknowledged the high level of uncertainty following the widely expected rate cut. He pointed to risks tied to US President-elect Donald Trump’s upcoming administration, noting that new tariffs could further weigh on Europe’s economy.

Despite these concerns, Kazaks maintained a cautiously optimistic view, stating that “Europe’s economy is going from its lowest point upwards.”

In an interview with the Financial Times, ECB Chief Economist Philip Lane indicated that the central is preparing to adjust its monetary policy approach as inflation moves closer to the 2% target.

While acknowledging that inflation has fallen near the desired level, Lane noted that “there is a little bit of distance to go,” especially with services inflation needing further reduction.

However, Lane emphasized that once the disinflation process is complete, monetary policy decisions will need to become “essentially forward-looking,” focusing on upcoming risks rather than relying on past data. He highlighted the importance of scanning the horizon for “new shocks” that could impact inflation pressures.

Over the course of next year, Lane expects a “transition to a more sustainable neighborhood of 2%,” signifying a shift from combating high inflation to maintaining price stability on a sustainable basis.