EuroWire, Brussels: Euro zone manufacturing activity contracted further in December as weakening demand and a renewed decline in new orders weighed on output, according to a closely watched business survey released on Tuesday. The data indicates that industrial conditions across the 20-nation currency bloc remained subdued at the close of 2025, reflecting ongoing pressure from high costs and sluggish global trade. The HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 48.8 in December from 49.6 in November. The reading marked its lowest level in nine months and came in below the preliminary estimate of 49.2. A PMI score above 50 indicates expansion, while a reading below that threshold signals contraction.
The survey showed that production declined for the first time in ten months as companies faced a sharper fall in orders. The output subindex fell to 48.9 from November’s 50.4, confirming a return to contraction. New orders dropped at the fastest pace in nearly a year, while export demand decreased at the steepest rate in 11 months. The data suggested that both domestic and foreign demand remained weak, with few signs of a rebound in late 2025. Germany, the euro zone’s largest economy, recorded the weakest manufacturing performance among the eight countries monitored. Its PMI sank to a ten-month low, underscoring continued challenges for Europe’s industrial powerhouse. Italy and Spain also slipped back into contraction after modest signs of improvement earlier in the fourth quarter. In contrast, France showed relative strength, with its manufacturing PMI reaching a 42-month high, indicating a limited rebound in output and domestic demand.
Supply chain constraints re-emerged across the bloc in December. Vendor delivery times lengthened to their highest level since October 2022, signaling renewed logistical pressures. These disruptions contributed to higher input costs, pushing input price inflation to a 16-month high. Despite the uptick in production expenses, manufacturers continued to lower selling prices for their goods in a bid to stimulate demand. Factory gate prices declined for the seventh time in eight months, reflecting persistent competitive pressures and excess inventory levels. Employment continued to decline across the euro zone manufacturing sector. The survey showed that factories cut jobs for the 31st consecutive month as weak order inflows and excess capacity prompted companies to scale back labor costs. This extended streak of job reductions highlighted the protracted downturn in industrial employment since early 2023.
Production decline marks renewed sector contraction
The report also showed that backlogs of work continued to fall, with firms reducing outstanding orders at a faster pace than in November. Inventories of finished goods and purchases were also down, suggesting that manufacturers remained cautious about future production levels and demand prospects. The rate of contraction in purchasing activity accelerated, aligning with the broader trend of subdued output and limited business confidence. Although conditions remained challenging, some firms reported slight improvement in supplier performance earlier in the quarter before the renewed delivery delays in December. However, overall supply chains remained fragile, with transportation bottlenecks and increased shipping costs continuing to weigh on production efficiency. Across the euro area, business sentiment showed modest signs of recovery. The survey found that manufacturers’ expectations for future output rose to their highest level since February 2022.
Industrial slowdown deepens across major economies
While the improvement indicated a more positive outlook for 2026, it followed nearly two years of pessimism amid rising interest rates, persistent inflation, and declining global demand for industrial goods. The December data underscored the ongoing weakness of the euro zone’s industrial base as factories entered 2026 under pressure from subdued demand, elevated costs, and slowing exports. Economists noted that while headline inflation has eased from its 2022 peaks, higher borrowing costs and cautious spending patterns continued to limit growth in manufacturing activity across major economies within the bloc. The euro zone’s overall manufacturing downturn capped another year of subdued performance for the region’s economy. Persistent declines in new business, weak export demand, and rising input costs have kept output below pre-pandemic levels in several member states.
The data indicated that the industrial sector continued to face structural challenges, including reduced global competitiveness and ongoing supply chain fragility. High energy costs, particularly in economies heavily reliant on imported gas, continued to undermine cost efficiency and production margins. The prolonged impact of tighter monetary policy and weakened global trade links further constrained investment in manufacturing infrastructure. Many firms remained focused on cost-cutting and efficiency gains rather than expansion, reflecting limited capacity utilization and cautious spending across the sector. The latest PMI results provided a comprehensive snapshot of the euro zone’s industrial conditions at year-end 2025, confirming a continued contraction and highlighting the challenges manufacturers face as they begin 2026.