Finance
Euro zone manufacturing slips deeper into contraction at year-end, PMI shows
Published by Global Banking & Finance Review®
Posted on January 2, 2026
2 min readLast updated: January 20, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on January 2, 2026
2 min readLast updated: January 20, 2026
Euro zone manufacturing PMI fell to 48.8 in December, marking contraction. New orders and export demand decreased, impacting output.
By Indradip Ghosh
BENGALURU, Jan 2 (Reuters) - Euro zone factory activity retreated further into contraction territory in December as production decreased for the first time in 10 months, dampened by accelerating declines in new orders, a survey showed on Tuesday.
The HCOB Eurozone Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 48.8 in December from 49.6 in November, marking its lowest reading in nine months and lower than a preliminary estimate of 49.2.
Readings above 50.0 indicate growth in activity, while those below that point to contraction.
"Demand for manufactured products from the euro zone is slowing down again. Significantly fewer orders, declining order backlogs, and continued inventory reduction are the most obvious indicators of this," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
"Companies seem neither able nor willing to build momentum for the coming year, but are instead exercising caution, which is poison for the economy."
The output subindex dropped to 48.9 from November's 50.4, marking its first contraction since February.
New orders fell at the quickest pace in almost a year, with export demand decreasing at the fastest rate in 11 months.
Germany, the bloc's largest economy, recorded the weakest performance among the eight nations monitored with the PMI reading hitting a 10-month low. Italy and Spain also slipped back into contraction territory.
France provided a rare bright spot, with its manufacturing PMI jumping to a 42-month high.
Supply chain pressures re-emerged for factories, with vendor delivery times increasing to the longest since October 2022. This contributed to input cost inflation accelerating to a 16-month high.
Factories, however, continued to discount their goods prices for the seventh time in eight months as they struggled to stimulate demand.
Weak demand led factories to shed jobs for the 31st consecutive month.
"Overall, it will not be easy for the manufacturing sector of the euro zone to gain a foothold in 2026. However, expansionary fiscal policy could help," de la Rubia added.
Despite current challenges, manufacturers' optimism about the year ahead improved to its highest level since February 2022, just before Russia invaded Ukraine.
(Reporting by Indradip Ghosh; Editing by Hugh Lawson)
PMI stands for Purchasing Managers' Index. It is an economic indicator that measures the activity level of purchasing managers in the manufacturing and services sectors, providing insights into economic trends.
Contraction refers to a decline in national output or economic activity, often indicated by a decrease in GDP. It typically signifies a slowdown in economic growth.
New orders refer to requests for goods or services that have not yet been fulfilled. They are a key indicator of future production and economic activity.
Input cost inflation occurs when the costs of raw materials and other inputs increase, leading to higher prices for goods and services in the economy.
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