Eurozone Manufacturing PMI slips back into contraction as Germany and France deepen slump
Europe’s factory sector fell back into contraction in November, with new orders shrinking and job losses accelerating—an unsettling mix that keeps pressure on the euro and reinforces expectations that the ECB will stay cautious into 2025.
Patchy recovery masked by core economies’ downturn
The latest HCOB Manufacturing PMI for the euro area dropped to a five-month low, while the output index sank to a nine-month low. The report shows the sector’s fragile footing: order books deteriorated again and employment posted the sharpest rise in job losses since April. Despite that, firms’ 12-month production expectations improved, hinting at a tentative turn in sentiment even as current activity softens.
The geographic picture is uneven. A majority of eurozone countries tracked by the survey are back in expansion, but the two largest economies—Germany and France—recorded deeper contractions in November. Survey compilers cited ongoing political uncertainty in France and a broadening sense of policy fatigue in Germany as factors weighing on investment and reform momentum. By contrast, Spain has notched seven consecutive months of growth, and Italy returned to modest expansion after earlier stagnation, supported by improving order inflows.
For markets, the backdrop points to capped euro rallies and a potential bid for duration as growth underperforms. With manufacturing still struggling to gain traction, traders are likely to keep rate-cut speculation alive for next year, even if the ECB remains data-dependent.
At a glance
- Eurozone Manufacturing PMI fell to a five-month low; output index at a nine-month low.
- New orders contracted and employment losses were the steepest since April.
- Six of eight tracked countries showed expansion, but Germany and France slipped further into recessionary territory in November.
- Spain’s manufacturing grew for a seventh straight month; Italy edged back into growth with improving order intakes.
- Business confidence improved across the bloc, with Germany less gloomy and France shifting from pessimism to cautious optimism.
- FX lens: Softer data risk capping EUR/USD rebounds and favoring defensive flows; front-end euro rates may lean lower on policy repricing.
- Macro read-through: Manufacturing remains a drag on euro-area growth, leaving the ECB space to prioritize activity risks if inflation continues to cool.
Country split: core weakness, southern resilience
Germany and France
Germany’s manufacturers reported a deeper contraction, reflecting weak demand and persistent uncertainty over the policy outlook. France also worsened, with political noise likely deterring investment decisions. The core’s weakness offsets broader improvements and keeps the overall euro-area gauge below 50.
Spain and Italy
Spain remained the standout, extending its expansion streak to seven months on firmer orders. Italy returned to growth after a September contraction and October stagnation, with rising order intakes suggesting production can grind higher into the near term. This north-south divergence helps stabilize the regional picture but has not yet been strong enough to pull the aggregate PMI back into expansion.
Policy and market implications
– ECB: A renewed contraction in factory activity, coupled with rising job shedding, underscores cyclical fragility. If inflation momentum stays on a downward path, the data strengthen the case for easier policy in 2025, though the Governing Council will seek confirmation across services, wages, and core prices.
– FX: EUR rallies could remain shallow amid growth underperformance. Crosses sensitive to European activity (EUR/GBP, EUR/CHF) may reflect relative growth and policy expectations, while EUR/USD hinges on comparative U.S. data and yield spreads.
– Bonds and equities: Softer PMIs typically support euro-area duration as growth premia compress. Equity sentiment may hinge on whether improved business confidence translates into orders and production, particularly in capital goods and autos.
This analysis was prepared by BPayNews.
FAQ
What did the latest eurozone Manufacturing PMI show?
The PMI fell to a five-month low in November, signaling contraction. Output hit a nine-month low, new orders declined, and job losses were the steepest since April, though 12‑month production expectations improved.
Which countries are driving the downturn?
Germany and France—Europe’s two largest economies—saw deeper contractions, outweighing expansions in most other surveyed countries.
Are there any bright spots?
Yes. Spain expanded for a seventh straight month, and Italy returned to growth. Both reported improving order intakes, suggesting near-term production support.
What does this mean for the euro?
Weak manufacturing tends to cap EUR/USD upside and can support safe-haven or duration bids in rates. The currency’s path will also depend on U.S. data and global risk sentiment.
How might this affect ECB policy?
The renewed factory contraction keeps rate-cut debates alive for 2025, provided inflation continues to cool. The ECB will look for corroboration from services activity, wage dynamics, and core inflation before shifting stance.
What should traders watch next?
Upcoming services PMIs, euro-area inflation prints, wage indicators, and Germany/France industrial data. Any sustained pickup in orders and employment would be an early signal that the manufacturing downswing is bottoming.
Last updated on December 1st, 2025 at 09:16 am
