Eurozone manufacturing slump enters record-breaking 28th month, latest PMIs show

BARCELONA (ICIS)—The eurozone manufacturing economy is still contracting, albeit at a slightly slower pace, according to new purchasing manager indices (PMIs) which mark the longest downturn since data collection began in 1997.

The HCOB Eurozone Manufacturing PMI for October rose to 46 from 45 the previous month, still well below the 50 threshold which separates expansion from contraction, according to S&P Global which compiles the monthly survey.

Production volumes decreased in October for the nineteenth straight month while output was constrained by a further marked decline in new factory orders, leading workforce numbers to be reduced further. On a positive note, contractions in production, sales and employment eased, although business confidence slipped to a one-year low.

The contractions remained sharp in Germany and France, the eurozone’s largest economies, weighing down the result. Moderate deterioration was seen in Italy and the Netherlands, although a renewed improvement at Irish factories was recorded.

Greece continued to display resilience, with a Manufacturing PMI above the 50.0 mark for a twenty-first month running. The top performer was once again Spain, which posted its fastest improvement in industrial conditions since February 2022.

Factory output continued to decrease across the euro area in October. Although the rate of contraction has cooled since September, it was broadly in line with the average seen over the current 19-month sequence of decline. Production lines were once again squeezed by a lack of incoming new work. Total new order inflows shrank at the start of Q4, although the extent of the fall was the softest since June.

Eurozone manufacturers once again trimmed purchasing activity, as they have done every month since July 2022. Amid this sustained tapering of input buying, pre-production stocks shrank at a sharp rate. Nevertheless, surveyed firms reported delivery delays from suppliers for a second month running.

Employment was cut further at the start of Q4. Despite easing, the rate of job shedding held close to September’s 49-month record. Another marked drop in staffing capacity came amid a further sharp fall in backlogged work and a deterioration in business confidence. Eurozone manufacturers’ growth expectations were at their weakest in a year.

Manufacturing costs fell in October, with these being passed on to customers as charges for goods leaving the factory gate were discounted to the greatest extent in six months.

Commenting on the PMI data, Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said, “There is one bit of good news in these numbers: the recession in the manufacturing sector did not deepen further in October. Production dropped at a slower pace than in the previous month, and new orders fell less sharply.”

He added, “It is not encouraging that inventory drawdowns for purchased materials continue at an unusually high pace. The ongoing reduction in inventories is obviously related to the fact that companies purchased and stockpiled materials and intermediate goods at an unprecedented scale in 2021 and 2022.”

The economist pointed out that sluggish global demand gives companies no reason to restock, which in turn weighs on the economy.

“The environment in the industry remains deflationary. This is good news for the purchase departments, but it seems companies are forced to pass on the corresponding price reductions in full to their customers. This points to fierce competition… We assume that China plays an important role here.”

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