In late 2025 particularly Q4 and December, German factory orders saw significant increases, with a notable surge of 7.8% month-on-month in December—the largest in two years.
This was driven heavily by large orders in fabricated metal products (+30.2%), machinery, electrical equipment, and defense-related contracts. Excluding volatile large contracts, orders still rose modestly (+0.9%).
This contributed to broader industrial output recovering from prior contractions, with metal products among segments showing growth. However, business sentiment in the metal and manufacturing sectors remains subdued or weak for several reasons.
Persistent challenges like high energy costs, weak export demand despite some recent pickup, competitive pressures, and structural issues in energy-intensive industries. Broader manufacturing indicators show ongoing contraction.
The HCOB Germany Manufacturing PMI rose to 49.1 in January 2026; a 3-month high but still below 50, signaling contraction, with output returning to modest growth but employment declining and input costs including metals rising sharply. Ifo and ZEW sentiment indices reflect cautious or mixed outlooks, with improvements in some export-oriented areas but overall weakness tied to automotive slowdowns, construction softness, and global uncertainties.
Steel-specific production remained under pressure, with declines in 2025 continuing into early 2026 amid bearish demand from autos and construction. While orders have risen boosted by specific factors like defense and capital goods, sentiment stays weak due to fragile underlying demand, cost pressures, inventory reductions, job cuts, and no full recovery yet.
Analysts see potential for gradual improvement in 2026, possibly driven by domestic demand and fiscal support, but the sector isn’t out of the woods—2026 is viewed as a pivotal year for stabilization rather than robust growth. This pattern echoes similar dynamics in related sectors like chemicals seeing slight sentiment ticks but still weak conditions.
The HCOB PMI, or Hamburg Commercial Bank Purchasing Managers’ Index, is a key economic indicator that provides insights into the health and trends of the manufacturing, services, and overall (composite) sectors in the eurozone and specific countries like Germany, France, Italy, and Spain.
It is produced through a partnership between Hamburg Commercial Bank (HCOB) and S&P Global, and has been in existence since the late 1990s. Often referred to as a Purchasing Managers’ Index® (PMI®) or in German as the Einkaufsmanagerindex® (EMI®), it serves as a leading indicator of economic activity, helping analysts, investors, and policymakers gauge whether sectors are expanding, contracting, or stable.
HCOB sponsors the creation of these indices, including flash (preliminary) versions and detailed breakdowns for manufacturing and services. The PMI is widely used because it offers timely data—often released monthly before official government statistics—making it a “high-frequency” tool for tracking economic shifts.
The PMI concept originated from broader global indices developed by organizations like S&P Global (formerly Markit) and the Institute for Supply Management (ISM) in the U.S. HCOB’s involvement began as a sponsorship to focus on European economies, particularly the eurozone.
It builds on surveys that have been conducted for decades, evolving into a standardized measure recognized worldwide. In Europe, the HCOB-branded PMI replaced or complemented earlier versions, emphasizing data for major economies to reflect regional dynamics.
The HCOB PMI is a diffusion index derived from monthly surveys sent to panels of purchasing managers in private sector companies. For the eurozone manufacturing PMI, for example, it draws from responses of around 3,000 manufacturers across countries like Germany, France, Italy, Spain, the Netherlands, Austria, Ireland, and Greece.
Similar panels exist for services and composite indices, typically surveying over 300 executives in manufacturing and another 300 in services. Survey questions focus on key aspects of business activity compared to the previous month, such as: New orders weighted at 30%: Measures incoming business demand.
Suppliers’ Delivery Times (15%): Indicates supply chain efficiency (longer times can signal high demand or bottlenecks).
Stocks of Purchases (10%): Monitors inventory levels. Respondents answer whether each aspect has improved, stayed the same, or worsened.
The index is calculated by assigning percentages to these responses and deriving a weighted average. The formula essentially creates a “diffusion” score: for each component, the percentage of “improved” responses is added to half the percentage of “no change” responses.
This results in a headline PMI figure ranging from 0 to 100. There are two main releases: Flash PMI: A preliminary estimate based on about 85-90% of responses, released around the 23rd-24th of the month.
Final PMI: The complete data, released about a week later. Sub-indices for input costs, output prices, backlogs, and future expectations are also provided, offering deeper insights into inflation pressures, employment trends, and confidence.
The further the reading is from 50, the stronger the rate of change. For instance, a reading of 55 might indicate moderate growth, while 60+ suggests robust expansion. Trends over multiple months are more telling than single readings, as the PMI can be volatile due to seasonal factors or one-off events.
Different sectors have nuances: Manufacturing PMI: Focuses on goods production, sensitive to global trade, supply chains, and commodity prices. Services PMI: Covers non-manufacturing like retail, finance, and hospitality, often reflecting consumer confidence and domestic demand.
Composite PMI: A blend of both, providing an overall economic snapshot. The HCOB PMI is valued for its forward-looking nature, often predicting GDP growth, inflation, and employment trends before official data is available.
It’s a “soft” indicator based on perceptions, complementing “hard” data like industrial production or retail sales. Central banks like the European Central Bank (ECB) use it to inform monetary policy, such as interest rate decisions.
In financial markets, PMI releases can move currencies (e.g., the euro), stocks, and bonds. A surprisingly strong reading might boost investor confidence, while a weak one could signal recession risks. For businesses, it helps in supply chain planning and forecasting demand.
As of early 2026, the HCOB Eurozone Manufacturing PMI stood at 49.5 in January, indicating mild contraction but an improvement from December’s 48.8. This reflected challenges like high input costs and weak orders in countries like Germany, offset by growth in others like France.
The Composite PMI reached 51.3 in early February, showing expansion driven by services. In October 2025, the Composite PMI hit a 17-month high of 52.2, fueled by stronger demand. These figures highlight the eurozone’s uneven recovery post-inflation and energy crises.
