In a troubling development for the European economy, manufacturers across the eurozone reported a significant decline in demand for their goods in November. According to the latest S&P Global purchasing managers’ index (PMI), France, Germany, and Austria were among the hardest hit nations, with the overall eurozone PMI falling to 45.2 last month from 46 in October.
The bleak outlook extended to the UK as well, where factory owners cut jobs and investment in response to slowing orders. The UK manufacturing PMI dropped to a nine-month low of 48 in November, down from 49.9 in October and below initial estimates. This news dealt a blow to Chancellor Rachel Reeves’ aspirations for robust economic growth.
Deepening Manufacturing Recession
Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, painted a grim picture of the eurozone’s manufacturing sector:
“These numbers look terrible. It’s like the eurozone’s manufacturing recession is never going to end. As new orders fell fast and at an accelerated pace, there’s no sign of a recovery any time soon.”
Germany recorded the fastest drop in output, while Italy’s factory sector shrank at the fastest rate in a year. France’s manufacturing industry experienced its steepest contraction in 10 months, underscoring the widespread nature of the downturn.
Brexit and Budget Woes
For UK manufacturers, the situation has been exacerbated by a combination of factors, including difficulties abroad, hold-ups in US ports, supply blockages in the Middle East, and the prospect of increased staffing costs following Labour’s first budget under Chancellor Reeves. Rob Dobson, a director at S&P Global Market Intelligence, noted:
“With recent budget announcements on labour costs and employer national insurance likely to raise costs further in 2025, and geopolitical tensions heating up notably around the threat of increased global protectionism, manufacturers are left facing an environment of high costs, low demand and raised uncertainty for the foreseeable future.”
Brexit delays at UK ports have hit smaller businesses especially hard, with many EU-based firms now seeking suppliers within the eurozone to avoid the complexities of complying with new rules.
Political Uncertainty Compounds Woes
Political instability has further dampened business confidence in key European economies. In France, the 22nd month of manufacturing decline was blamed on lower levels of new work amidst ongoing turmoil. German factory owners also reported domestic political uncertainty following the collapse of the SPD-led coalition as another factor weighing on sentiment.
As Europe’s manufacturing sector grapples with this confluence of challenges, the road to recovery appears increasingly arduous. Policymakers and industry leaders will need to navigate a complex landscape of economic headwinds, geopolitical tensions, and political uncertainty to chart a path forward for the region’s struggling factories.
