Eurozone Manufacturing Slumps to Nine-Month Low as German Woes Deepen Industrial Slowdown

Eurozone Manufacturing Faces Sharp Downturn

The eurozone’s manufacturing sector ended 2025 on a weak note, signalling that the bloc’s industrial recovery is far from secure. According to the latest HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI) compiled by S&P Global, the index dropped to 48.8 in December, down from 49.6 in November — the lowest level in nine months.

A PMI reading below 50 indicates contraction, and December’s figure confirms the sector’s renewed slide. After almost a year of modest growth, production volumes fell for the first time since February 2025, while new orders dropped at their fastest rate in nearly a year.

Germany Leads the Downturn as Core Economies Struggle

Germany once again found itself at the heart of the downturn. The country’s manufacturing PMI plunged to 47.0 in December, a ten-month low, signalling a sharp drop in both output and new orders.
Factories cut jobs at their fastest pace in six months, highlighting persistent industrial weakness in Europe’s largest economy.

Other major economies weren’t left unscathed:

Spain slipped back into contraction, with its PMI falling to 49.6, down from 51.5 in November.
Italy also reported its fastest pace of contraction since March 2025.
France, however, defied the regional trend, its PMI rising to 50.7 — a 42‑month high — fuelled by strong export demand in the aerospace and defense sectors.

Smaller economies such as Greece, Ireland, and the Netherlands managed to stay in expansion mode, offering a glimmer of resilience amid the broader downturn.

Supply Chain Pressures Return

Despite weakening demand, supply chain pressures mounted across the eurozone. Vendor lead times increased to their longest since late 2022, a sign that logistical pressures and energy costs are creeping back into the system.

Key trends observed in December included:

Rising input costs, accelerating at the fastest rate in almost a year and a half.
Falling factory gate prices, as manufacturers continued to discount heavily to stimulate sales.
Export demand decline, marking the sharpest drop in nearly a year.

Employment in the manufacturing sector continued to shrink, extending job losses into a 31st consecutive month.

Outlook for 2026: Hope Amid Headwinds

Despite the gloomy data, sentiment among European manufacturers has improved. Business confidence for the year ahead reached its highest level since February 2022, reflecting cautious optimism that policy support and investment could revive the sector.

According to Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB):

“Demand for manufactured products from the eurozone is slowing down again. For 2026, however, there is hope that Germany’s economic stimulus program and rising defense spending across Europe will breathe new life into the industry.”

Investment and Defense Spending Could Spur Growth

Germany’s recently approved €82.69 billion defense budget for 2026, up more than €20 billion from 2025, signals a potential boost for the region’s industrial base. With several European nations increasing defense and infrastructure spending, analysts expect these investments to help offset the broader manufacturing slowdown.

The Bigger Picture

The latest manufacturing data serves as a reminder that Europe’s industrial economy remains vulnerable to fluctuating demand, high borrowing costs, and global trade tensions. Yet with fiscal stimulus, energy stabilisation, and robust investment in green technologies and defense, 2026 could mark the beginning of a gradual industrial recovery.