Eurozone manufacturing hits 18-month low but growth remains ‘robust’

Source: ICIS News

2018/05/23

Duisburg industrial area

LONDON (ICIS)--The eurozone’s manufacturing industries growth hit an 18-month low in May but remained at “robust” rates despite a slowdown in Germany and France and a more cautious outlook from entrepreneurs across the 19-country currency union, analysts at IHS Markit said on Wednesday.

While France and Germany slowed down, growth in the other countries across the area rose to a three-month high.

The Flash Eurozone Manufacturing PMI Output Index in May stood at 54.5 points, down sharply from 56.2 points in April.

A reading above 50.0 points marks economic expansion, while a reading below would show contraction.

The flash estimates released by Markit are composed of around 85% of the usual replies to the monthly survey.

However, after healthy performance in 2017, the industrial sectors in the eurozone are starting to have a more cautious outlook about future prospects, which in turn affected levels of recruitment, said Markit.

Nevertheless, the analysts said that growth of business activity in the eurozone in May remained robust, and pointed to how numerous public holidays across Europe during the month could have been a factor affecting the manufacturing sectors.

“While the surveys from February through to April had seen widespread cases of business activity being disturbed by temporary factors such as bad weather, strikes, illness and the timing of Easter, the May survey saw frequent reports of business being disrupted by a higher than usual number of public holidays, which workers often bridged on to weekends,” said Markit.

While rates of recruitment in some countries slowed down during May, Markit also observed “anecdotal evidence” of a shortage of both labour and raw materials in other countries, although the extent of such a constraints showed signs of easing during the month.

Elsewhere in the economy, the predominant services sector also slowed down slightly in April,

Manufacturers’ pricing power, however, remained weak, in line with the rates of inflation in the eurozone which consistently have come below the desired target of close to but below 2%, as per the European Central Bank (ECB) mandate.

The latest figures for the eurozone’s rate of inflation showed prices rising at a 1.2% in April, down from 1.3% in March and sharply down year on year from the 1.9% posted in April.

“The May survey also brought mixed news on prices. Input cost inflation accelerated to a three-month high, buoyed in part by higher fuel and energy costs, alongside signs of rising wage pressures in some countries,” said Markit.

“In contrast, average selling prices for goods and services rose at the slowest rate since last September, with companies often reporting difficulties in hiking prices amid weak final demand.”

Chris Williamson, chief economist at IHS Markit, said that at current rates of activity, second-quarter growth could come at 0.4%, which he described as solid.

He added that job creation, despite the slowdown, was still running at an “encouragingly” robust rate, adding that despite bleaker expectations from businesses, the index for business confidence remained at an above-average level.

“However, it’s also becoming increasingly evident that underlying growth momentum has slowed compared to late last year, especially in relation to exports ... Some of the fog will hopefully lift with the June PMI data, providing a clearer signal of the underlying growth momentum,” said Williamson.

“Until then, however, it’s likely that the disappointing May survey results will rekindle some concerns regarding downside risks facing the eurozone economy.”

Pictured: The sculpture Rhine Orange next to the Duisburg industrial area, Germany
Source: Stefan Ziese/imageBROKER/REX/Shutterstock