The eurozone manufacturing sector ends 2024 in continued contraction, recording a marked deterioration in market conditions. The December HCOB Purchasing Managers’ Index (PMI) survey results showed that declines in output and new orders have accelerated, extending the two-and-a-half-year deterioration in the manufacturing sector across the eurozone. Firms experienced further challenges as purchasing activity and inventories were sharply reduced. Operating levels also continued to trend downward, despite a slight improvement in business confidence, with growth expectations rising to a four-month high.
The Eurozone HCOB Manufacturing PMI data showed that the headline index recorded a reading below 50.0 for the 30th consecutive month in December, reflecting the ongoing stagnation in the sector. Despite this negative reading, there were some divergences between eurozone countries. While southern countries such as Spain and Greece saw an improvement in sector conditions, larger countries such as Germany, France and Italy continued to deteriorate, with France recording its lowest level since May 2020. These differences point to uneven effects across the eurozone.
Demand for eurozone goods fell again at the end of 2024, as the contraction in new orders accelerated. This decline in orders was mainly driven by the domestic market, with new export orders recording a slower decline compared to the previous month. At the same time, goods production continued to decline across all industries, with the decline in output in December the sharpest since October 2023. This decline in output reflects a general weakness in the European economy, with companies unable to regain growth even amid falling production rates.
Continuing challenges in manufacturing as contraction slows
Despite falling output, manufacturers have managed to maintain production to some extent by cutting back on employment. As the contraction continues, companies have faced significant pressure to maintain output and employment levels. The workforce in the sector fell significantly for the 16th consecutive month, but these employment declines slowed compared to previous months. This shows that companies have resorted to job cuts as a means of coping with the difficult economic environment.
Manufacturers also recorded a significant decline in purchasing activity in December 2024. Input purchases fell sharply, and stocks of intermediate goods before production fell. This decline in stocks was among the strongest since 2009, indicating continued weak demand and that companies expect this to continue in the coming months. Stocks of finished goods were also reduced, reflecting concerns that demand in the near term will not improve significantly.
In terms of price developments, production costs in the euro area remained flat in December, allowing factories to reduce prices for their manufactured goods to mitigate the negative effects of deflation. With lower raw material and energy costs, companies were able to accelerate the decline in their selling prices for the fourth consecutive month.
Despite these difficulties, the data showed some optimism about the future. Growth expectations for the next 12 months rose, with business optimism reaching a four-month high. However, confidence in the future was not enough to offset the ongoing recession, and expectations remained far from sustainable growth levels. Despite this optimism, the industrial sector is expected to face significant challenges in the coming months, with economists believing that economic conditions may continue to impact the sector’s performance in 2025.
The Eurozone Manufacturing Crisis: Challenges and Prospects
In this context, the chief economist at Hamburg Commercial Bank pointed out that the deterioration in the manufacturing sector shows no signs of improvement in the near future. He said that the accelerating decline in orders and backlogs indicates that there is no quick recovery. He stressed that the real challenge will be when companies start to rebuild their stocks of intermediate goods, but December showed no signs of this happening.
Instead, companies continued to reduce their stocks of final goods rapidly. He also pointed out that companies are still reducing the number of their employees, reflecting a state of redundancy due to weak demand for products. He added that this trend will continue in the coming months, especially in light of corporate restructuring and job reductions.
This situation shows that the manufacturing sector in the euro area is facing a real crisis in light of the decline in orders and production. The manufacturing sector in Spain expanded strongly, showing a noticeable improvement compared to major euro area countries such as Germany, France, and Italy, which remained mired in an industrial recession.
De la Rubia pointed out that Spain has an advantage in its ability to mitigate the negative effects of the global economy, especially from China, to which its exports represent a very small percentage. Low energy costs have also helped Spain to weather the crisis better. However, despite the improvement in the situation in Spain, the Spanish economy will not be enough to fully revive the European economy, as Spain represents only 12% of the eurozone’s GDP.
In conclusion, the eurozone manufacturing sector remains in a very difficult situation with continued contraction and economic challenges.
