Euro zone manufacturing slips deeper into contraction at year-end, PMI shows

By Indradip Ghosh

BENGALURU, Jan 2 (Reuters) - Euro zone factory activity retreated further into contraction territory in December as production decreased for the first time in 10 months, dampened by accelerating declines in new orders, a survey showed on Tuesday.

The HCOB Eurozone Manufacturing Purchasing Managers' ?Index (PMI), compiled by S&P Global, fell to 48.8 in December from 49.6 in November, marking its lowest reading ?in nine months and lower than a preliminary estimate of 49.2.

Readings above ?50.0 indicate growth in activity, while those below that ?point to contraction.

"Demand for ?manufactured products from the euro zone is slowing down again. Significantly fewer orders, declining order backlogs, and ?continued inventory reduction are the most ?obvious indicators of this," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

"Companies seem neither able nor willing to build ?momentum for the coming year, but ?are instead ?exercising caution, which is poison for the economy."

The output subindex dropped to 48.9 from November's 50.4, marking its first contraction since February.

New orders fell ?at the quickest pace in almost a year, with export demand decreasing at the fastest rate in 11 months.

Germany, the bloc's largest economy, recorded the weakest performance among the eight nations monitored with the PMI reading hitting a 10-month low. Italy and Spain also slipped back into contraction territory.

France provided ?a rare ?bright spot, with its manufacturing PMI jumping to a 42-month high.

Supply chain pressures re-emerged for factories, with vendor delivery times increasing to the ?longest since October 2022. This contributed to input cost inflation accelerating to a 16-month high.

Factories, however, continued to discount their goods prices for the seventh time in eight months as they struggled to stimulate demand.

Weak demand led factories to shed jobs for the 31st consecutive month.

"Overall, it will not be easy for the manufacturing sector of the ?euro zone to gain a foothold in 2026. However, expansionary fiscal policy could help," de la Rubia added.

Despite current challenges, manufacturers' optimism about the year ahead improved to its highest level since ?February 2022, just before Russia invaded Ukraine.

(Reporting by Indradip Ghosh; Editing by Hugh Lawson)