Europe
Eurozone Manufacturing Expands for First Time Since 2022, but Recovery Remains Fragile
The eurozone’s manufacturing sector has finally returned to growth after more than two years of contraction, signalling a cautious turnaround but one still clouded by risks.
According to the HCOB Eurozone Manufacturing PMI, compiled by S&P Global, activity rose to 50.7 in August 2025, up from 49.8 in July. The index crossed the crucial 50-point threshold for the first time since June 2022, marking the end of a prolonged decline.
The rebound was underpinned by the sharpest surge in factory output since March 2022 and the first rise in new orders in over three years. Domestic demand proved to be the driving force, helping offset a continued slump in export sales, which fell for the second month in a row.
Growth Uneven but Broad-Based
At the country level, Greece and Spain led the recovery with strong growth, while France and Italy managed slight expansions after periods of weakness. Germany, the bloc’s industrial powerhouse, reported broadly stable conditions at a 38-month high, while downturns in Austria, the Netherlands, and Ireland eased to more modest levels.
Despite the improvements, challenges persist. Backlogs of work dropped for the 39th consecutive month, pointing to underutilised capacity. Employment in the sector also continued to fall, though only marginally, marking one of the softest declines in the past two years.
Inventories shrank sharply, with both pre- and post-production stocks reduced at the fastest pace since March. Purchasing activity also slipped, while supply chain strains worsened, pushing input lead times to their longest since late 2022.
Costs and Prices
For the first time since March, manufacturers reported a slight increase in input costs, while output charges were marginally reduced as firms sought to remain competitive.
Economists view the rebound as a tentative but significant sign of resilience. Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that rising domestic orders offer hope for a more sustainable recovery. He stressed, however, that external risks—particularly US tariff policies, geopolitical tensions, and persistent supply chain disruptions—could still weigh heavily on momentum.
“The recovery is real but remains fragile,” de la Rubia said, pointing out that shrinking backlogs and low inventories highlight lingering uncertainty. Yet, he added, the fact that production is being ramped up and orders are rising in this environment suggests companies are showing resilience.
Read More : Eurozone PMI tops 50 in August, signals fragile recovery - Fibre2Fashion
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