Euro Zone Manufacturing Declines

LONDON (Reuters) – Manufacturers in the euro zone ended last year on a sour note, with factory activity declining at a faster rate. The downturn was broad-based, affecting the bloc’s three largest economies: Germany, France, and Italy. In contrast, Spain’s manufacturing industry expanded robustly.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 45.1 in December, which is just below a preliminary estimate and further below the 50 mark that separates growth from contraction. In November, it stood at 45.2, and the headline reading has been sub-50 since mid-2022.

An index measuring output, which is a good indicator of economic health, fell to 44.3 from 45.1 in November.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted: “Even in December, the manufacturing sector is not delivering any holiday cheer. It is the same old story – downward. New orders have dropped even more than in the previous two months, crushing any hopes for a quick recovery.”

His view was supported by an accelerated decline in order backlogs. An index measuring new orders fell further below breakeven to a three-month low while the backlogs of work measure dropped to 42.0 from 42.9, indicating that overall activity was largely fulfilling existing demand.

Despite factories reducing prices for the fourth consecutive month, manufacturers continued to reduce headcount amid a mixed outlook. Additionally, with President-elect Donald Trump proposing a 10% tariff on all imports, European goods may become less desirable in the U.S.

On a more positive note, the European Central Bank is anticipated to cut interest rates by at least 100 basis points this year, according to a Reuters poll conducted last month.