Key Points
- Asian manufacturing is booming, driven by a surge in demand for AI technology.
- European factory activity shrank in December, with Germany hitting a 10-month low.
- South Korea and Taiwan, major semiconductor producers, saw their first growth in months.
- China’s factory output also made a surprise comeback at the end of the year.
As 2025 came to a close, a clear split emerged in the global economy. While factories in Europe struggled, Asia’s manufacturing powerhouses finished the year on a strong note, largely thanks to a surge in demand for artificial intelligence technology and a rebound in export orders.
In the eurozone, manufacturing activity shrank for the second consecutive month in December. The latest data showed that production declined for the first time in 10 months as new orders continued to decline. Germany, the region’s largest economy, had the worst performance, with its manufacturing sector hitting a 10-month low.
Italy and Spain also saw their factory output return to contraction. One economist described the situation as “poison for the economy,” noting that companies appear unwilling to invest and build momentum for the new year.
The story was completely different in Asia. Major tech exporters such as South Korea and Taiwan saw their factory activity increase for the first time in months. Both of these economies are huge producers of semiconductors, the tiny chips that power the AI boom. According to manufacturers, new product launches and a pickup in global demand are driving the recovery.
Other Southeast Asian nations also reported strong growth, and China’s factory activity made an unexpected turnaround, helped by a rush of orders before the holidays. While it’s still too early to know if these countries have fully adjusted to the new U.S. tariffs, the strong demand for AI hardware is giving them a major boost.
Looking ahead, Asia appears well-positioned to benefit from a shift in U.S. demand away from China. As the world becomes increasingly reliant on AI, countries that produce the necessary components are poised to thrive. Meanwhile, Europe will have to find a way to revive its struggling industrial sector to keep pace in the global economic race.
