Germany’s manufacturing sector ended the year on a weaker footing, reinforcing concerns that the eurozone’s economic recovery is losing momentum.
Flash Purchasing Managers’ Index (PMI) data for December from S&P Global points to a deeper-than-expected contraction in German industry, while services growth slowed across the bloc.
The latest flash Purchasing Managers’ Index (PMI) surveys from S&P Global reveal a sharper-than-expected contraction in German manufacturing, dragging overall eurozone industry activity lower for the second consecutive month.
Germany’s manufacturing PMI fell to 47.7 in December, down from 48.2 in November and below the 48.5 consensus forecast. It marked the second consecutive decline and pushed the index further into contraction territory. Services remained in expansion at 52.6, but eased from 53.1 and undershot the 53.0 consensus.
Manufacturing activity in the broader eurozone fell slowed to 49.2, down from 49.6, missing expectations of a neutral reading.
‘What a mess’: German manufacturing falls as orders deteriorate
“What a mess, one might exclaim in view of the further downturn in the manufacturing sector,” said Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, commenting on Germany.
“For the second month in a row, the headline manufacturing PMI has fallen deeper into sub-50 contraction territory, and for the first time in ten months, production is also declining.”
According to de la Rubia, the weakness in output reflects a sustained drop in new orders, which had already slumped in November and continued to deteriorate in December, raising concerns over the outlook for early 2026.
De la Rubia also highlighted renewed inflationary pressures in the eurozone's services sector, noting that cost inflation reached its highest level in nine months in December.
“The European Central Bank, which is meeting on 18 December and is monitoring service inflation particularly closely, is likely to see its publicly stated policy of leaving interest rates unchanged confirmed,” he said.
“Price pressure, driven in part by wage increases, is still noticeable.”
France outperforms as manufacturing rebounds
France stood out as a relative bright spot for industrial activity. The manufacturing PMI jumped to 50.6 in December, from 47.8 in November and well above the 48.0 consensus, returning to expansion territory. Meanwhile, services slowed to 50.2 from 51.4, missing expectations of 51.2.
“December brought encouraging signs in indices for both output and order books, with foreign demand providing a notable lift,” said Jonas Feldhusen, junior economist at Hamburg Commercial Bank.
However, he cautioned that political uncertainty linked to the absence of a government budget remains a noticeable headwind for France’s economy.
European markets cautious ahead of US labour data
European equities traded cautiously on Tuesday as investors awaited key US labour market data later in the session.
The EURO STOXX 50 rose 0.4% to 5,770 points, trading less than 1% below the record highs reached in November. LVMH led gains, rising 1.3%, while Airbus and ASML Holding both fell around 1.5%.
Germany’s DAX slipped 0.3%, while Italy’s FTSE MIB, Spain’s Ibex 35 and France’s CAC 40 posted modest gains, supported by financial stocks.
Defence stocks remained under pressure. Rheinmetall fell around 1% after a 5.9% drop on Monday, as investor optimism over a potential peace deal in Ukraine weighed on the sector. Leonardo Spa declined 4.7% and Thales SA fell 2.5%.
In currency markets, the euro was little changed at $1.1755, close to its highest level since early October. German 10-year Bund yields were steady at 2.85%.
