Eurozone industry falters: PMI hits lowest in 3 months

The latest PMI data for the eurozone reveal that the industrial sector has been experiencing a deep slowdown for two and a half years. The main index fell from 45.2 points in November to 45.1 points in December, marking the lowest result in three months and indicating the thirtieth consecutive month of economic downturn.

The state of European industry varies significantly across regions. Spain and Greece, with indices of 53.3 and 53.2 points, respectively, experienced accelerated growth. Meanwhile, the largest economies experienced deep sector contraction—Germany's PMI dropped to 42.5 points, and France's PMI plummeted to a low of 41.9 points, the worst since May 2020.

New order inflow decreased again in December, with the rate of decline accelerating compared to November. The reduction scale was similar to the average of the last 32 months, dating back to the beginning of the current downturn. The export area showed slight improvement, as the order decline rate slowed compared to the previous three months, suggesting that the main source of problems is currently the internal eurozone market.

The level of production in December saw its most significant drop since October 2023. Companies aiming to maintain current activity levels more frequently resorted to fulfilling backlogged orders, which decreased at an accelerated pace. The situation is particularly difficult in the intermediate goods sector, where declines were most pronounced.

Employment reduction in the eurozone industry has persisted for a year and a half. In December, the pace of layoffs slightly slowed compared to November, but the scale of job cuts remained substantial. Entrepreneurs cite the need to adjust employment levels to weaker demand and uncertain economic prospects.

Some stabilization in pricing was observed—December marked the first time since August 2024 that purchasing costs did not decrease. Nevertheless, producers continued to lower finished goods prices for the fourth consecutive month, indicating strong competitive market pressure. Companies also significantly reduced the volume of material and raw material purchases, leading to the fastest decline in warehouse inventories since 2009.

Experts draw particular attention to the situation in the largest eurozone economies. Despite positive results, the Spanish industry cannot counterbalance the problems of the major economies due to its relatively small share in eurozone GDP, which is about 12 percent. On a positive note, there is a slight improvement in business expectations for production over the next 12 months, although they remain below the long-term average.

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, emphasizes in his commentary on the data that in December, the industry could not announce any good news.

The situation is developing as before, i.e., declining. The number of new orders fell even more than in the previous two months, which dashes hopes for a quick recovery, he notes.

He believes the accelerated decline in production backlogs confirms this assessment. The industry's recovery condition is for companies to rebuild their semi-finished product inventories again. In December, there were no signs of such a development. On the contrary, the analyst emphasizes that inventories were reduced at the fastest pace of the entire year.

He adds that EU companies have also accelerated the sale of their finished goods inventories, evidently expecting weak demand to continue. Companies continue to reduce employment; although the rate of job cuts slightly weakened in December, it remains relatively high. The analyst concludes that This trend will likely continue due to numerous reports of restructuring plans in companies extending well into the new year.