Germany's manufacturing sector ended 2025 on a weaker footing, as the manufacturing PMI fell deeper into contraction at 47.0, its lowest level in ten months. This marked a clear shift in momentum, with production declining for the first time since early 2025 after a prolonged, but fragile, expansion. The downturn was driven mainly by falling demand, particularly from abroad, as export orders contracted at their fastest pace in a year.

Firms responded defensively. Employment, purchasing activity and input stocks were cut more aggressively, signalling caution about near-term demand. At the same time, supply-side conditions tightened. Delivery times lengthened for a fourth consecutive month, and input costs rose for the first time in almost three years, reflecting pressures from metals, supplier capacity constraints and trade frictions. Despite this, intense competition prevented manufacturers from passing costs on, leading to further reductions in factory gate prices.

There were, however, tentative signs of optimism. Business expectations improved to a six-month high, supported by hopes of stronger demand from new product launches and higher defence and infrastructure spending. Overall, the latest data suggest a sector under strain, but not without pockets of forward-looking resilience as 2026 approaches.

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.