Germany's manufacturing downturn showed signs of easing at the start of 2025, with the manufacturing PMI climbing to an eight-month high of 45.0 in January, up from 42.5 in December and 0.9 points above the consensus estimate. While the sector remains in contraction, the slowdown in declines across key indicators-output, new orders, and exports-suggests the worst may be behind.

Demand remained weak, with firms citing investment hesitation and international competition as key barriers to growth. However, job losses, though persistent, slowed to their weakest rate since August, hinting at cautious stabilisation. Manufacturers continued to trim surplus capacity, clearing backlogs faster than new orders arrived.

On the pricing front, discounting persisted for a 20th consecutive month, but price cuts were less aggressive as input costs neared stability. Suppliers, under pressure from weak demand, offered better terms, tempering cost inflation despite rising energy and transport expenses.

Encouragingly, business sentiment surged to a three-year high, fuelled by hopes of lower interest rates and a post-election economic rebound. While challenges remain, Germany's manufacturers are positioning for a potential turnaround, with slowing contractions setting the stage for renewed stability. The latest update takes the German RPI to minus 13 and the RPI-P to 1. This means that economic activities are slightly behind market expectations in Germany.

Forecasters look for no revision in the final report from the flash at 44.1.

The Manufacturing Purchasing Managers' Index (PMI) provides an estimate of manufacturing business activity for the preceding month by using information obtained from a representative sector survey incorporating around 500 companies. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The data are released by S&P Global.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the ISM manufacturing index in the U.S. and the Markit PMIs elsewhere, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.

The S&P Global PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.