Eurozone industry improves but remains in contraction on lower output, new orders

Author: Morgan Condon

2019/12/02

LONDON (ICIS)--Manufacturing in the eurozone performed better than expected in November but recorded decreases in output and new orders, hurting employment, analysts at IHS Markit said on Monday.

The November Purchasing Manager’s Index (PMI) stood in November at 46.9 points, up from the 46.6 flash estimate, and up from 45.9 points mark reached in October.

Despite hitting a three-month high, manufacturing remains below the 50.0 neutral mark, meaning the sector gas been in contraction for ten months.

The trend was reflected in the intermediate and investment goods sectors, with both recording slower rates of decline in November, while consumer goods remained stable on the previous month.

Declines increased for both output and new orders, with new export orders (including intra-eurozone trade) fell for the fourteenth successive month, but at the weakest pace since June.

Manufacturers continued to use built-up stock rather than investing in new purchases, causing the levels of outstanding works and employee numbers to decline, the latter for the seventh successive month.

There was little in terms of supply-side pressure, as “input costs fell sharply, and at a rate only slightly slower than October’s 43-month record, amid reports of lower prices being paid for inputs such as metals and plastics,” the analysts said.

Germany's manufacturing continued to perform the worst out of the eight countries measured, with a PMI of 44.1, rising to a five-month high and up on the flash estimate of 43.8.

Only France and Greece's manufacturing recorded growth.

Business sentiment improved across the eight-surveyed countries at varying levels, with Germany demonstrating particular optimism for manufacturing in the year ahead.

If the industrial sector stops weighing down the eurozone economy, then fourth quarter GDP could record positive – albeit minimal – gains on the previous quarter.

This was not taken as universally positive, as analysts at Oxford Economics said that this could be an indicator of weakness from other sectors and potentially hampering a wider recovery in the eurozone.

“The general improvement of the manufacturing PMIs in November confirms that the fall in the composite PMI suggested by the flash estimate came from a deterioration in the services sector, which has remained rather robust up to now," the analysts said.

"This highlights the risks that the manufacturing stabilisation could be thwarted by a delayed effect of the industrial woes on domestic demand.”

Thumbnail picture: Volskwagen's Glaeserne Manufaktur (Transparent Factory) in Dresden, Germany
Source: Filip Singer/EPA-EFE/Shutterstock

Focus article by Morgan Condon