Eurozone Manufacturing Remains in Contraction as Global Demand Slows

Hamburg Commercial Bank (HCOB)

The eurozone manufacturing sector continues to struggle, marking its 28th consecutive month of contraction in October 2024. According to the latest data from Hamburg Commercial Bank (HCOB), the region's manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, was 46.0 in October, slightly up from 45.0 in September. A PMI reading below 50 indicates a contraction, and this prolonged downturn represents the longest period of sustained decline in the sector since at least 1997.

Declining Production and Weak Orders

Production volumes in the eurozone fell for the 19th consecutive month, as new factory orders also declined. Companies continued to draw raw materials from existing inventories, a hangover from the stockpiling practices that occurred during the COVID-19 pandemic. HCOB's chief economist, Cyrus de la Rubia, explained that businesses had purchased and stored materials and intermediate goods in unprecedented volumes during 2021 and 2022. However, with sluggish global demand and no immediate need to restock, companies have now become more cautious in their purchasing strategies.

This shift in behavior reflects the broader deflationary cycle currently gripping the eurozone’s manufacturing industry. The lack of fresh demand is exacerbating the competition among manufacturers, putting downward pressure on prices and profit margins. With no immediate catalyst to drive recovery, the manufacturing sector remains stuck in a challenging environment, hindered by a global slowdown and weak consumer spending.

Global Trends Affecting Manufacturing

In addition to the eurozone’s struggles, the UK manufacturing sector also slipped back into contraction in October, marking the first decline in six months. The S&P Global manufacturing PMI for the UK fell to 49.9, down from 51.5 in September. This decline in production growth is attributed to a "wait-and-see" approach by businesses ahead of the government's first budget under the new administration. While production had been higher for six consecutive months, new factory orders in the UK dropped for the first time since April 2024. Meanwhile, input cost inflation fell to a 10-month low, indicating a reduction in pressure on the manufacturing sector's operational costs.

Conclusion

The ongoing contraction of the eurozone manufacturing sector reflects a broader trend of weakened global demand, inventory overhangs, and heightened competition, all contributing to a deflationary environment. With no clear signs of recovery in the immediate future, manufacturers are facing an extended period of uncertainty. Businesses will need to adapt to changing conditions, including potential shifts in global supply chains and demand patterns, if they hope to navigate this prolonged downturn.

Tariff Shock Forces IMF to Cut Global Growth Forecast

IMF

Trump’s Tariffs Trigger Global Economic Revisions, Says IMF

Focus Keyphrase: IMF global growth forecast 2025 tariffs

The International Monetary Fund (IMF) has significantly lowered its 2025–2026 global growth outlook following steep new tariffs introduced by former President Donald Trump. The revised World Economic Outlook, released this week, shows a projected global GDP growth of just 2.8% in 2025 and 3.0% in 2026, down from 3.3% per year forecast earlier this year.

The revision stems from Trump’s across-the-board tariff policies, which include 10% on most imports, 25% on steel and aluminum, and a record 145% on Chinese imports. These levels, the IMF noted, mark the highest effective US tariff rates in over a century.

🇺🇸 North America Faces Sharp Downturn

The IMF warns that the United States, Canada, and Mexico will suffer the most due to both tariffs and retaliatory trade measures. The US growth forecast dropped from 2.7% to 1.8% for 2025, while Mexico is now projected to shrink by 0.3% instead of growing, and Canada’s growth falls to 1.4%.

The IMF cited heightened policy uncertainty and weakened demand as key factors eroding economic confidence and investment. Meanwhile, President Trump continues to defend the tariffs, claiming they boost American capitalism and would incentivize onshore manufacturing.

Markets, however, responded negatively. US stock indices fell over 2%, and fears of a broader economic slowdown intensified following Trump’s renewed attacks on Federal Reserve Chair Jerome Powell for not lowering interest rates.

China and Eurozone Not Immune

The IMF also reduced its outlook for China, predicting a decline to 4.0% annual growth in 2025–2026, down from the previous forecast of 4.6%. The euro area will also see slower expansion at 0.8% in 2025 and 1.2% in 2026.

Although Trump asserts tariffs are bringing “billions” into the US economy, the IMF argues that the "unpredictability of the trade environment" is undermining global recovery efforts and long-term economic planning.

IMF Maintains Global GDP Growth Outlook Amid Trade and Geopolitical Risks

IMF

The International Monetary Fund (IMF) has kept its global GDP growth projections steady at 3.2% for both 2024 and 2025, according to its updated World Economic Outlook released today. While short-term growth remains stable, the report highlights significant long-term risks stemming from protectionist trade policies, supply chain disruptions, and geopolitical tensions.

Risks to Global Growth: Trade and Geopolitics

IMF Director of Research Pierre-Olivier Gourinchas cautioned that escalating regional conflicts, particularly in the Middle East, could disrupt commodity markets and amplify economic uncertainty. In addition, potential trade wars between the US, Europe, and China could have a severe impact.

For instance, the report includes a scenario where increased tariffs and trade policy disputes could lower the US GDP annual growth rate by 0.5 percentage points from 2025 to 2030, with ripple effects also felt in the eurozone and China. These challenges would exacerbate manufacturing slowdowns and heighten economic instability.

Regional Growth Highlights

United States: The IMF revised its US GDP growth forecast for 2023 upward to 2.8%, citing stronger-than-expected economic activity.

• China: China’s GDP growth forecast was slightly reduced to 4.8%, reflecting slower-than-anticipated recovery in some sectors.
• Global Impact: Medium-term growth is further constrained by high levels of sovereign debt, which limit public investment in critical areas like the energy transition.

Warning on Protectionism

The report also raised concerns about rising protectionist policies. Former US President Donald Trump has proposed tariffs of up to 20% on imports, with even higher rates for Chinese goods, should he return to office. Gourinchas warned that such policies could significantly lower global output and hinder economic recovery efforts.

Outlook for Economic Growth

While the baseline forecast offers stability for 2024-25, the IMF emphasized that long-term growth prospects are at risk due to policy uncertainty, high debt levels, and geopolitical tensions. Effective global cooperation will be key to mitigating these challenges and supporting sustained economic growth.