German factories end 2025 weak as demand slump deepens

Germany’s manufacturing sector has ended 2025 on a weaker note, with business conditions deteriorating further in December, according to the latest HCOB PMI survey. The headline Manufacturing PMI fell to 47 in December from 48.2 in November, marking a ten-month low.

Production declined for the first time in ten months. The setback was driven by a renewed and sharper fall in new orders, which recorded their steepest contraction since January 2025. Manufacturers cited difficulties in securing fresh business both domestically and overseas.

Export demand remained a major drag. Foreign orders fell for a fifth consecutive month, with the pace of decline accelerating to its fastest since December 2024, reflecting weak global demand and ongoing trade frictions, S&P Global said in a release.

In response, German goods producers intensified cost-cutting measures. Employment fell at the sharpest rate in six months, while purchasing activity contracted at the fastest pace in nearly a year. Stocks of inputs were run down aggressively, posting their steepest decline since early 2025, as firms adjusted output to softer order books.

Despite lower input demand, supply-side pressures increased. Supplier delivery times lengthened for a fourth straight month, marking the most pronounced deterioration since September 2022. Survey respondents pointed to reduced supplier capacity and trade-related disruptions.

Input costs rose for the first time in almost three years. However, intense competition prevented manufacturers from passing these costs on, leading to a further, albeit modest, reduction in factory gate prices.

“In December, industry was affected not only by weak demand and falling sales prices, but also by rising input prices, which came as a surprise. Over the past few months, these prices had shown signs of stabilising, but an increase is something that has not happened for almost three years. Inventories of purchased goods have fallen at an accelerated pace over the past three months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

On a more positive note, business sentiment improved. Output expectations rose for a second consecutive month to their highest level since June, supported by hopes of demand from new product launches and increased defence and infrastructure spending.

“With the start of government-backed infrastructure projects and the booming demand for defence equipment, things could look different in 2026. In fact, more companies now expect higher production a year from now,” Rubia added.

ALCHEMPro News Desk (HU)