The manufacturing sector in the euro area has encountered yet another month characterized by dwindling activity and falling order levels as of December 2024. This trend persists even as overall business confidence remains tepid, despite a rise in growth expectations among some manufacturers. According to the final HCOB Eurozone Manufacturing PMI, which gauges the health of factories in the eurozone, the index settled at 45.1 in December 2024.
This figure marks a slight decline from the previous month as well as falling short of the consensus forecast of 45.2. This three-month low highlights a more pronounced contraction in both production output and new orders, fueled by data disseminated on Thursday by Hamburg Commercial Bank partnered with S&P Global. The ongoing downturn within the region's manufacturing landscape has now extended into its 30th consecutive month, primarily affected by significant drops in purchasing activity and diminishing pre-production inventories.
The employment scenario within the sector has also not improved, with job losses persisting for 18 months straight, reflecting ongoing challenges. Cyrus de la Rubia, the chief economist at Hamburg Commercial Bank, indicated that manufacturers continue to face job cuts. Although there was a slight easing in the rate of job reductions in December, it remains markedly elevated and is likely to persist into the new year as various companies undergo structural changes.
"Manufacturers are still cutting jobs. Although the pace of job trimming slowed slightly in December, it is still relatively high, and this trend is likely to continue well into the new year given all the news about companies restructuring," said de la Rubia. The downturn is most stark in Germany, France, and Italy, wherein these countries have reported the steepest declines in manufacturing activities.
This contraction aligns with a weakened demand for goods produced within the eurozone. In contrast, Spain and Greece have experienced substantial improvements in their manufacturing circumstances. De la Rubia pointed out, "Spain has the advantage of being less exposed to China, with only 2% of its exports destined for the Chinese market.
Lower energy costs have also aided Spain in navigating the crisis more effectively. However, it’s important to note that Spain, representing only around 12% of the eurozone's GDP, cannot alone revitalize the entirety of the eurozone economy." Despite these significant challenges, a cautious sense of optimism is emerging among eurozone manufacturers for the upcoming year, 2025.
Growth expectations surged to a four-month high in December; however, the overall confidence levels still hover below historical averages, indicating that while there is hope for recovery, the path ahead may still be fraught with hurdles..