The latest economic data from Standard & Poor's Global reveals a significant deterioration in the Eurozone's manufacturing sector, with the pace of contraction in manufacturing activity accelerating to its highest level since last March. These results reflect the extent of the pressures facing the European economy, as actual factory output levels declined for the first time since February of last year, raising concerns about the region's economic recovery.
Details of the Purchasing Managers' Index and the decline in performance
According to the final reading of the monthly survey, the Purchasing Managers' Index (PMI) for the manufacturing sector in the Eurozone fell to 48.8 points last month. This represents a significant decline compared to the preliminary reading of 49.2 points and to the 49.6 points recorded in November 2025. Economically, any PMI reading below 50 points clearly indicates a contraction in economic activity, while readings above 50 indicate growth, thus confirming that the sector has entered a technical recession.
Economic context and export challenges
This decline in factory output, following nine consecutive months of growth, has collided with the harsh economic reality of a rapidly falling new orders. The domestic market was not the only contributing factor; a drop in external demand played a crucial role in reducing overall new business, with exports registering their sharpest decline in 11 months. This slowdown in exports reflects weak global demand and the impact of global geopolitical and financial conditions on the Eurozone's trading partners.
Inflationary pressures and supply chains
On the cost front, industrial companies faced a dual challenge: on the one hand, there was growing evidence of renewed supply chain pressures leading to logistical delays, and on the other hand, input and raw material costs were soaring. The rate of increase in purchase prices reached its highest level in nearly a year and a half, severely squeezing factory profit margins.
Despite these rising costs, factories have been forced to lower the selling prices of their finished products in an attempt to stimulate demand and clear inventory, with prices falling for the seventh time in the past eight months. This discrepancy between rising production costs and falling selling prices puts European companies in a financial bind that could affect their future hiring and investment decisions.
A glimpse into the future amidst the uncertainty
Despite the current bleak picture, the report offered a glimmer of hope in the form of improved outlook for manufacturing companies for the current year, with expectations reaching their best levels since February 2022. This optimism indicates companies' bet on improved economic conditions, perhaps with expectations of interventions from the European Central Bank to ease monetary policies or an improvement in the stability of global supply chains, which could get production moving again at a faster pace in the near future.
