Manufacturing activity across the euro zone shrank further in December, underscoring persistent weakness in Europe’s industrial sector, while Asia’s factory powerhouses ended 2025 on a firmer footing thanks to a rebound in export orders and surging demand linked to artificial intelligence, according to private surveys.
In the 20-nation euro zone, factory activity slid deeper into contraction as production fell for the first time in 10 months, driven by renewed declines in new orders. The HCOB Eurozone Manufacturing Purchasing Managers’ Index, compiled by S&P Global, dropped to 48.8 in December from 49.6 in November. It marked the lowest level in nine months and the second consecutive reading below the 50 threshold that separates growth from contraction.
The downturn was broad-based across the bloc. Germany, Europe’s largest economy, recorded the weakest performance among the eight countries surveyed, with its PMI falling to a 10-month low. Italy and Spain also slipped back into contraction, highlighting the fragility of the region’s recovery. “Demand for manufactured products from the euro zone is slowing down again,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding that companies were showing little appetite to build momentum for the year ahead, a stance he warned was damaging for economic prospects.
France stood out as a rare bright spot, with its manufacturing PMI climbing to a 42-month high, while Britain, outside the European Union, saw factory activity grow at its fastest pace in 15 months. The UK improvement was driven by a recovery in demand after a budget by finance minister Rachel Reeves eased some pressure on businesses.
In contrast, Asia’s manufacturing landscape showed renewed strength. Factory activity in major technology exporters South Korea and Taiwan rebounded in December after months of contraction, and most Southeast Asian economies maintained solid growth. The improvement followed data from China earlier in the week that showed an unexpected turnaround in factory activity, helped by a pre-holiday surge in orders.
Although it remains unclear whether Asia’s exporters are fully adjusting to U.S. tariffs, stronger global demand has lifted sentiment heading into the new year. “Exports from most countries have surged in recent months, and we think the near-term outlook for Asia’s export-oriented manufacturing sectors remains favourable,” said Shivaan Tandon, an Asia economist at Capital Economics, pointing to strong global demand for AI-related hardware and a shift in some U.S. demand away from China.
Taiwan’s PMI rose to 50.9 in December from 48.8, returning to expansion territory for the first time in 10 months. South Korea’s PMI also moved back above 50, reaching 50.1 from 49.4, marking its first expansion since September and the strongest rise in new orders since November 2024. Both economies are major semiconductor producers and have benefited from booming demand tied to artificial intelligence.
Manufacturers cited new product launches and improved external demand as key drivers of the rebound, with confidence in the outlook reaching its highest level since May 2022, according to S&P Global Market Intelligence. That optimism encouraged firms to increase employment and purchasing activity. Official data released this week also showed South Korea’s exports, a bellwether for global trade, exceeded forecasts in December.
Elsewhere in Asia, factory growth remained generally positive, though Indonesia and Vietnam reported slight slowdowns. India’s manufacturing sector cooled to its weakest growth in two years, even as it remained the strongest performer in the region. Separately, Singapore reported an acceleration in economic growth in 2025 to 4.8%, beating expectations, while Japan’s PMI is due for release on Monday, offering further insight into the region’s industrial health.
