In Europe, labor is flowing from industry to services

Data on business activity in the euro area in February record its recovery in the services sector: the corresponding index reached the threshold of 50 points for the first time in the last six months. The recovery in the sector is supported not only by optimistic expectations at the beginning of the year, but also by active hiring. In the eurozone manufacturing sector, the dynamics remain the opposite. Employees who have lost their jobs due to the digitalization of production and the consequences of the energy transition often do not seek to retrain and improve their skills and leave for the growing service sector.

The euro area business activity index remained in negative territory in February, but at the same time reached its highest value in the last eight months. According to preliminary estimates from HCOB Bank and the agency S&P Global, the composite PMI rose to 48.9 points in February from 47.9 points in January. Let us remind you that values ​​above 50 points indicate an increase in business activity, below – a contraction.

In many ways, the positive dynamics were ensured by stabilization in the services sector: the index describing it reached 50 points for the first time since July (after 48.4 in January, the forecast for February is 48.8).

Note that at the beginning of the year, indicators are traditionally supported by optimistic business expectations: this time in connection with the future easing of the monetary policy of the European Central Bank. The index of business confidence in services hit a ten-month high. According to data from S&P Global, the services sector saw strong hiring in February, the fastest it has been since July 2023, when the industry was riding on post-pandemic momentum (which has now largely fizzled out).

Some personnel are now flowing into the sector from the still extremely weak industry. Preliminary data record a decline in manufacturing PMI: to 46.1 points in February from 46.6 in January. The index has remained in deep negative territory since the fall of 2022, largely due to the consequences of the Russian military operation in Ukraine. Moreover, the pace of its decline accelerated again in February. The number of new orders is especially noticeably declining, notes S&P Global.

So far, there is no shortage of workers in the manufacturing sector. Over the past few years, companies have been deliberately reducing the number of employees: first due to the digitalization of certain areas of production, then due to the rapid rise in energy prices, and then due to the acceleration of the pace of energy transition (this is clearly visible in the example of the German automotive industry – see below). “Kommersant” dated February 14).

The trend recorded by the International Labor Organization and other supranational organizations is that displaced employees do not seek to improve their skills or retrain in order to work in production under new conditions.

More and more people are choosing to work in the growing service sector rather than in the shrinking industrial sector.

Migrants could partially fill the emerging needs: in recent years, they have been entering the labor market of developed countries quite quickly. However, migrants are often unable to engage in work that corresponds to their qualifications: difficulties remain both with the recognition of foreign diplomas and with obtaining additional education – primarily with language courses (see. “Kommersant” dated October 26, 2023).

The flow of personnel into services from industry could seriously affect the recovery of production as early as the second half of 2024. Let us remind you that the ECB expects to soften its monetary policy this summer and therefore expects a revival of business activity in the manufacturing sector, which has suffered from high rates. The lack of qualified employees can significantly delay the timing of this restoration.

Kristina Borovikova