Euro zone factory activity contracts in January but output rebounds, PMI shows

Euro zone factory activity remained in contraction territory in January for the third straight month amid persistent weakness in new orders ‌despite output returning to growth, a survey showed. The HCOB Eurozone Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 49.5 in January from December's ⁠nine-month low of 48.8, slightly higher than a preliminary estimate of 49.4.

PMI readings above 50.0 indicate growth in activity, while those below that level point to a contraction. "Some progress can be seen in the ​manufacturing sector, but it's happening at a snail's pace," said Cyrus de la Rubia, chief economist at ‍Hamburg Commercial Bank.

The manufacturing output index, a key component of the headline figure, climbed back above the 50 threshold to 50.5 in January from 48.9 in December, indicating modest production growth. However, new orders fell for the third consecutive month. The decline ⁠in ‌new work was less ⁠severe than in December but still dragged down the headline index.

Factory job cuts continued for the 32nd straight month, although the ‍pace of reduction was the slowest since September. The country breakdown revealed significant divergence across the bloc. Greece registered ​the strongest performance with a five-month high of 54.2, while France recorded expansion at 51.2, its ⁠highest reading in over three and a half years.

By contrast, manufacturing sectors in Spain, Germany, Italy and Austria all remained in ⁠contraction, with Austria showing the weakest performance at 47.2. "All in all, this highly uneven picture across the eurozone is not exactly laying the groundwork for a sustained upswing," added de la Rubia.

Input costs ⁠rose at the fastest rate in three years, primarily due to higher energy prices. Despite mounting cost pressures, ⁠manufacturers were unable to ‌pass these on to customers, with output prices remaining virtually unchanged from December.

Still, manufacturers' confidence about the year ahead improved to its highest level since February ⁠2022, suggesting optimism that conditions will eventually improve.