Global Manufacturing: Recession in Europe, Growth Signs in Asia

Global Manufacturing: A Two-Way View

S&P Global collected HCOB Euro Area Manufacturing Purchasing Managers' Index (PMI), which fell to 48.8 in December from 49.6 in November, marking the lowest level in the last 9 months. The index remained below the critical threshold of 50 for the second consecutive month, failing to separate growth from contraction.

The region's locomotive economy, Germany, has exhibited its weakest performance in the last 10 months, becoming the center of contraction. Italy and Spain have also slipped back into contraction territory.

On the other hand, France caught attention with its manufacturing PMI data soaring to the highest level in 42 months, representing one of the rare bright spots in the region. The United Kingdom, buoyed by confidence from the new budget, recorded the fastest growth in the last 15 months.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, summarized the situation with the following words: "Companies are acting overly cautiously instead of gaining momentum for the new year; this situation is like poison for the economy."

AI Wave in Asia

Contrary to stagnation in Europe, Asia’s technology-exporting economies broke a months-long cycle of contraction in December. Taiwan (50.9) and South Korea (50.1) made significant strides to return to growth territory due to massive demand for artificial intelligence hardware. South Korea witnessed its sharpest increase in new orders since 2024.

In China, a surprising improvement was observed in factory activities due to increased orders before the holiday.

Despite the manufacturing sector in India recording its slowest growth in two years, it continued to maintain the strongest expansion rate in the region.

2026 Projections

Economists forecast that the US's shift towards alternatives outside of China and the need for AI-based hardware will continue to be a "driving force" for Asian economies in the first quarter of 2026. Shivaan Tandon, Asia Economist at Capital Economics, noted that "The near-term outlook for Asia's export-oriented manufacturing sectors remains quite favorable."

Global markets are now closely monitoring whether this technological momentum in Asia can offset the demand stagnation in Europe and how the US's new trade policies will shape this picture.