Eurozone Manufacturing Contraction Steeper than Initially Thought

The HCOB Eurozone Manufacturing PMI rose to 49.5 in January 2026, broadly in line with the preliminary estimate of 49.4 and up from December’s nine-month low of 48.8. Despite the improvement, the reading still signaled a third consecutive month of contraction, pointing to a downturn that remained only marginal overall. New orders fell for a third straight month, while output returned to growth after recording its first decline in ten months in December. At the country level, manufacturing conditions improved in Greece, France, and the Netherlands, but deteriorated further in Germany, Italy, Spain, and Austria. Cost-cutting remained a theme at the start of 2026, as firms reduced employment, purchasing activity, and inventories in January. On the inflation side, input cost pressures accelerated to a three-year high, while output prices were largely unchanged. Looking ahead, business confidence strengthened, with expectations reaching their highest level since February 2022.

The HCOB Eurozone Manufacturing PMI increased to 49.4 in January 2026, up from 48.8 in December and above market expectations of 49.1, according to a preliminary estimate. The latest reading suggests that the downturn in manufacturing business conditions eased, as production returned to growth supported by an improvement in new orders, following the first decline in output in ten months at the end of 2025. Meanwhile, manufacturing employment continued to decline modestly, while firms reduced their purchasing activity at the slowest pace in six months. On the price front, input cost inflation accelerated to a three-year high, while selling prices continued to edge lower. Business confidence also strengthened, rising to a near four-year high.

The HCOB Eurozone Manufacturing PMI fell to 48.8 in December 2025, below both the preliminary estimate of 49.2 and November’s final reading of 49.6, marking the fastest pace of contraction since March. Declines in output and new orders were the main drivers, with Germany recording the steepest deterioration and weakest performance since February. Italy and Spain also remained in contraction, while France bucked the trend, posting its strongest expansion since June 2022. Employment continued to fall across the region, extending a sequence of factory job losses to over two-and-a-half years, while backlogs of work declined, suggesting capacity was sufficient to handle existing orders. Sales performances weakened despite ongoing discounting, even as input cost inflation rose to a 16-month high. However, firms were the most optimistic about the year-ahead outlook since just before Russia’s full-scale invasion of Ukraine in February 2022.