Eurozone industry struggles deepen as German and French PMI plummet

The latest PMI data for the eurozone indicate 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 the thirtieth consecutive month of economic decline.

The situation in European industry remains highly varied geographically. Spain and Greece, with indices of 53.3 and 53.2 points respectively, experienced accelerated growth. Meanwhile, the largest economies are in a stage of deep sector contraction - the German PMI dropped to 42.5 points, and the French PMI fell to a dramatically low level of 41.9 points, the worst since May 2020.

The flow of new orders decreased again in December, and the rate of decline surpassed that of November. The scale of reduction was similar to the average of the last 32 months since the beginning of the current downturn. The situation was slightly better in the export sector, where the rate of order decline eased compared to the previous three months, suggesting that the main source of problems is currently the internal market of the eurozone.

The level of production in December saw the most significant drop since October 2023. Companies, striving to maintain current activity levels, more often resorted to fulfilling backlogged orders, which decreased at an accelerated pace. The situation is especially challenging in the intermediate goods sector, where declines were the most severe.

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

In terms of pricing, there's some stabilization; in December, for the first time since August 2024, purchasing costs stopped falling. Nevertheless, producers continued to decrease finished goods prices for the fourth consecutive month, indicating strong competitive pressure in the market. Companies also significantly reduced the volume of material and raw material purchases, leading to a decline in warehouse inventories at the fastest rate since 2009.

Experts particularly highlight the situation in the largest eurozone economies. The Spanish industry, despite positive results, cannot counterbalance the problems of the major economies due to its relatively small share in the eurozone GDP, which is about 12 percent. A positive aspect is the 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 the same 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 supports this assessment. The condition for industry recovery is for companies to rebuild their semi-finished product inventories again. In December, there were no signs of such development. On the contrary, the analyst emphasizes that inventories were reduced at the fastest pace of the entire year.

He believes that EU companies have also sped up the sale of their finished goods inventories as they expect weak demand to continue. Companies continue to reduce employment, and though the rate of job cuts slightly weakened in December, it remains relatively high. - The analyst summarizes that This trend will likely persist due to numerous reports of company restructuring plans for a period well into the new year.