Eurozone manufacturing momentum ebbs in June as demand deteriorates

LONDON (ICIS)–Eurozone manufacturing sector activity slipped further into contraction in June as demand slowed in most of the bloc’s largest economies, while conditions improved in the UK.

The purchasing managers’ index (PMI) for the eurozone sector fell to 45.8 from 47.3 the previous month, representing the fastest rate of decline seen so far this year as demand weakened and new export orders saw a 28th consecutive monthly drop.

Germany was the weakest-performing of the eight largest eurozone member state economies, with the manufacturing PMI sinking to 43.5, according to data from S&P Global. A PMI score of below 50.0 signifies decline.

Despite the ongoing impact of Red Sea shipping disruption, manufacturers in the region reported further shortening of supplier delivery times.

Despite steadily-falling order times, input costs for eurozone factories increased for the first time in 16 months, while the prices charged for finished items continued to fall in the face of the ongoing demand chill.

Reported across much of the bloc, weaker demand resulted in manufacturers purchasing lower quantities of raw materials on the back of lower production requirements, with the drop in buying levels sharper than in May.

“This decline comes after a record stretch of 25 consecutive months of falling demand, but a vague hope that things were improving in May when the respective index showed some increase,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which helps to assemble the PMI data.

“This means that any significant recovery will likely be postponed until at least the end of the summer or the beginning of fall,” he added.

Output in Greece remained on growth footing despite its manufacturing PMI dropping to a six-month low, standing at 54.0, with activity in Spain and the Netherlands also growing despite a slowdown in the rate of expansion.

Conditions in Ireland, France, Italy and Austria remained contractionary, despite manufacturing output in Italy firming to a two-month high at 45.7.

Manufacturing activity in the UK continued firm during the month, with activity remaining near May levels at 50.9 as broad-based new order intake across sub-sectors continued to drive growth.

Despite the strong demand across manufacturing sectors, that growth was largely confined to orders to large firms, with demand falling for smaller and mid-sized businesses.

Two months of stronger activity has also driven an increase in cost inflation, modest overall but particularly pronounced for input prices.

“The performance of the domestic market remains a real positive, providing a ripe source of new contract wins,” said S&P Global director Rob Dobson.

“In contrast, the ongoing weak export performance is concerning, with manufacturers reporting difficulties in securing new business in several key markets including the US, China and mainland Europe,” he added.

Stronger manufacturing conditions in the UK, as well as certain key markets, increase the hope that the decline seen in the eurozone in June may be short-lived, according to de la Rubia.

“We are inclined to see this more as a temporary blip rather than a sign of a prolonged downturn,” he said. “Manufacturing growth was seen in other parts of the world in June, such as the United States, UK, and India, according to their respective Flash PMI. This global recovery provides a supportive backdrop for Eurozone manufacturers.”

Focus article by Tom Brown.

Thumbnail photo: A production line at BMW’s factory in Munich, Germany (Source: Anna Szilagyi/EPA-EFE/Shutterstock)