EMU: PMI Manufacturing Final

Highlights

Eurozone manufacturing entered 2026 on a cautiously firmer footing, with output returning to growth in January, even as underlying momentum remained weak. The Eurozone manufacturing PMI rose to 49.5, a two-month high, signalling that contraction is easing rather than reversing. Production expanded for the tenth time in eleven months, yet this was driven more by operational adjustments than by demand, as new orders fell for a third consecutive month.

The divergence between output and orders points to fragile fundamentals. Firms sustained production by drawing down backlogs and inventories, while continuing to cut jobs and restrain purchasing. Employment fell for the thirty-second month running, though at a slower pace, suggesting firms are nearing the limits of labour shedding. At the same time, pricing power remained constrained as input cost inflation accelerated to a three-year high, but factory gate prices were broadly unchanged, implying ongoing margin pressure.

Country performance was uneven among the top four euro economies. France expanded, reaching a 43-month high, but these gains were offset by renewed weakness in Germany, Italy and Spain. Encouragingly, business confidence rose to its strongest level since February 2022, reflecting optimism around future output. Still, a durable recovery will require a clear turnaround in new demand rather than cost-driven resilience. This update takes the RPI to 17 and the RPI-P to 21, meaning that economic activities continue to outpace market expectations in the Eurozone.

Market Consensus Before Announcement

Index expected unrevised in the January final from the January flash at 49.4 and up from 48.8 in December.

Definition

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 3,000 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). Released by S&P Global, national data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. These countries together account for an estimated 89 percent of Eurozone manufacturing activity.

Description

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 S&P Global 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.

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