Output returns to growth but weak demand and job losses keep manufacturing under pressure
Factory activity across the eurozone remained in contraction territory for a third straight month in January, although production returned to modest growth, signalling tentative stabilisation in the region’s manufacturing sector, a closely watched survey showed on Monday.
The HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 49.5 in January from 48.8 in December, which had marked a nine-month low. The reading was also slightly above the flash estimate of 49.4. A PMI reading below 50 indicates contraction.
“Some progress can be seen in the manufacturing sector, but it’s happening at a snail’s pace,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
A key positive in the January data was the rebound in output. The manufacturing output index climbed back into expansion territory, rising to 50.5 from 48.9 in December, pointing to a return to modest production growth after several months of contraction.
Despite the improvement in output, the broader recovery remained fragile. New orders declined for the third consecutive month, highlighting continued weakness in demand. While the pace of decline eased compared with December, subdued order books continued to drag on overall activity.
Employment conditions also remained under pressure. Manufacturers cut jobs for the 32nd straight month, though the pace of job losses was the slowest since September, suggesting some easing in labour market stress.
The survey highlighted a stark divergence across countries within the bloc. Greece recorded the strongest performance, with its PMI rising to a five-month high of 54.2, while France moved into expansion territory at 51.2, its highest reading in more than three-and-a-half years.
By contrast, manufacturing activity in Germany, Spain, Italy, and Austria remained in contraction, with Austria posting the weakest reading at 47.2.
“All in all, this highly uneven picture across the euro zone is not exactly laying the groundwork for a sustained upswing,” de la Rubia said.
Cost pressures intensified during the month, with input prices rising at the fastest pace in three years, largely due to higher energy costs. However, manufacturers struggled to pass these higher costs on to customers, leaving output prices broadly unchanged from December.
Still, business sentiment improved. Manufacturers’ confidence about the year ahead rose to its highest level since February 2022, indicating cautious optimism that conditions may gradually improve in the months ahead.
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