Eurozone manufacturing growth accelerates in September as Germany shifts into gear

LONDON (ICIS)–Eurozone manufacturing sector growth reached its highest level in two years and its third consecutive month of growth in September, driven by a substantial rally in Germany, according to purchasing managers’ index (PMI) data.

The eurozone manufacturing PMI rose to 53.7 during the month compared to 51.7 in August, marking the strongest growth levels for the sector since 2018.

Rising output, faster order book growth and stronger exports all helped to drive up activity and reduce job losses, according to analysis from IHS Markit.

The demand helped to cut inventory levels, with the amount of material in warehouses dropping at the sharpest rate in a decade, on the back of coronavirus restrictions remaining low for most countries during the month.

Germany, which has been contending with bearish conditions for its industrial sector for more than two years, initiated by a shift to new vehicle emissions standards in late 2018 and exacerbated by weak export demand due to sluggish global economic conditions through 2019, saw a manufacturing PMI of 56.4, the highest in more than two years. A PMI score of above 50.0 denotes growth.

Germany was far and away the strongest performer of the key eurozone economies, with Italy’s manufacturing PM standing at 53.2, and levels in the Netherlands, Austria and France standing at 52.5, 51.7 and 51.2.

Conditions were weaker for the manufacturing sectors in Greece and Ireland, which were stagnant with PMIs of 50.0, although this is the first time the Greek sector has managed to avoid a contraction since before the onset of the pandemic.

The surge in German output helped to counterbalance those weaker growth levels, but without that contribution the overall PMI for the month would have slipped back to the lowest levels since June, when they stood at 47.4, according to Markit chief economist Chris Williamson.

“Divergent export performance explains much of the difference between national production trends, with Germany the stand-out leader in terms of growth in September, led by a strengthening of demand for investment goods such as plant and machinery,” he said.

Growth was also strong in the UK, where output and new order growth moderated slightly in September, but remained significantly above average at 54.1, driven by delayed projects moving forward and more people returning to work. The picture for employment worsened considerably ahead of the end of  the country’s furlough pay scheme this month.

September saw the rapid increase in coronavirus infection levels and contagion rates across Europe but impact on manufacturing operations or retail and hospitality operations was limited during the month. Governments are attempting to stem the increases with restrictions on mingling between households and curfews in hot zones as opposed to the complete lockdowns seen in March and April.

It remains unclear whether these interventions will be sufficient to reduce case numbers which are reaching highs seen earlier in the crisis in some regions, but market analysts remain relatively dovish on the outlook for the fourth quarter, largely predicting a slight dip compared to July-August, but nothing like the crash seen earlier in the year.

The International Monetary Fund (IMF) last week moderated its expectations for the extent of the forecast global GDP decline this year. The organisations official world economic outlook update is expected later this month, but an IMF representative told reporters that the outlook could be more moderate than the 4.9% contraction forecast in June.

Despite market expectations of a less disruptive government response to the second peak of infections, Israel has already instituted a countrywide lockdown and the Spanish government is considering instituting one for Madrid, where the infection level is highest.

Thumbnail picture: A Volkswagen production site in Zwickau, Germany. Photo by Jens Meyer/AP/Shutterstock.