Euro Zone Manufacturing Slips Back Into Contraction as Job Cuts Intensify

Fresh survey data shows euro zone factory activity weakening again in November, with shrinking demand triggering the fastest pace of job cuts in months.

Manufacturing activity across the euro zone returned to contraction in November as factories continued to face softening demand, deteriorating international orders, and rising cost pressures that weighed on production plans.

The latest reading from the HCOB Eurozone Manufacturing Purchasing Managers’ Index showed activity slipping below the growth threshold, reinforcing concerns about the region’s industrial outlook heading into the new year.

The manufacturing PMI declined to 49.6 in November, down from 50.0 in the previous month, marking the lowest level in five months and falling slightly short of early estimates.

A reading below 50 indicates shrinking activity, suggesting that the brief period of stabilization seen earlier in the autumn has not been sustained.

New orders fell once again after showing no change in October, reflecting continued hesitancy among both domestic and international buyers.

Export demand remained particularly weak, with overseas orders declining for the fifth month in a row, pointing to challenges in global supply chains and slowing markets abroad.

As demand softened, manufacturers accelerated job reductions at the fastest rate since April, signaling a growing sensitivity to cost management and operating pressures.

Companies also drew down finished goods inventories at a rate not seen since mid-2021, suggesting they are adjusting output and stock levels to match subdued demand.

Economists noted that the overall picture for the euro zone remains fragile, with the manufacturing sector unable to break out of a prolonged phase of stagnation.

While several smaller economies recorded improving factory conditions, the two largest industrial players in the bloc — Germany and France — saw deeper contraction.

Germany’s PMI fell to 48.2, and France’s dropped to 47.8, both marking nine-month lows and underscoring the unevenness of the region’s recovery.

Six other monitored economies showed growth, with Ireland and Greece leading the expansion, although their smaller size limits their ability to offset declines in the bloc’s industrial heavyweights.

Manufacturing output still managed to expand but at a noticeably slower rate, with the output index easing to 50.4 from 51.0 in October, its weakest level in nine months.

Businesses reported rising input costs at the sharpest pace since March, ending a period of relative stability in pricing for raw materials and intermediate goods.

Despite higher cost pressures, many firms chose to absorb these increases rather than pass them on, resulting in a slight decline in output prices.

This tendency reflects both competitive pressures and ongoing caution around raising prices amid unsteady demand conditions.

Even with the overall softening trend, sentiment among manufacturers improved, reaching its highest point since June.

Business leaders in several major economies expressed renewed optimism that conditions may stabilize or improve in the coming year.

In Germany, confidence showed signs of modest recovery, while French manufacturers shifted from a more pessimistic outlook toward a cautiously optimistic stance.

Analysts argue that improved sentiment could support a more favorable industrial trajectory if economic conditions gradually strengthen.

Experts note that the broader economic environment, including steady inflation trends near the European Central Bank’s target, is likely to keep interest rates unchanged for an extended period.

A stable monetary environment may help manufacturers plan more predictably, though structural challenges remain across supply chains and international markets.

The euro zone enters the final stretch of the year balancing early-stage optimism and evidence of ongoing industrial weakness.

While improved expectations offer some hope, actual demand conditions will determine whether the manufacturing sector can regain momentum in the months ahead.