Eurozone manufacturing makes continued gains in December

Author: Morgan Condon

2021/01/04

LONDON (ICIS)--Eurozone manufacturing in December reached its strongest point in more than two years, according to the latest purchasing managers’ index (PMI) data released by IHS Markit on Monday.

PMI Indices
(below 50 = contraction)
December 2020 November 2020 Trend
Eurozone 55.2 53.8 31-month high
Germany 58.3 57.8 34-month high
Netherlands 58.2 54.4 27-month high
Italy 52.8 51.5 2-month high
France 51.1 49.6 2-month high
Spain 51.0 49.8 2-month high

All three market segments in the eurozone marked an improvement in operating conditions on November’s levels, but the rate of growth differed between segments.

Those producing investment goods recorded the strongest growth in operating conditions, followed by the intermediate goods segment, while consumer goods’ producers tracked marginal strength on the previous month.

Strength in upstream manufacturing highlights the relative buoyancy of the chemicals sector compared to other industries.

Manufacturing PMI in the eurozone has maintained growth above the 50.0 neutral-mark for sixth consecutive months, following the crash in the second quarter as lockdowns swept the continent.

Production also increased for the sixth successive month, supported by an increase in new orders, with new export orders also rising on November’s level.

Strength exports as well as overall growth were strongest in Germany, marking the greatest expansion in three years, followed by the Netherlands, which marked a two-year high.

“The strong manufacturing growth is thanks to a large extent on booming demand for German goods, which drove most of the increase in eurozone production during December, in turn buoyed by rising exports,” said IHS Markit chief business economist Chris Williamson.

Growth indicated some strain on the eurozone’s manufacturing sector, as stretched capacity caused work backlogs to increase for the fifth month in a row, at a rate close to October’s 32-month high.

Production also marked delays due to input delivery during December, while average lead times deteriorated to the greatest extent since April.

Purchasing activity increased for a fourth successive month, and at the fastest pace since February 2018. Operating expenses rose to the highest point since November 2018 with rates of high inflation across the bloc.

Selling prices also rose for the third month in a row, and to the greatest degree since February 2019.

The pandemic continued to weigh down on logistics, with transport delays attributed to coronavirus restrictions and general goods shortages at suppliers.

This inspired manufacturers to continue running down their stocks of raw materials and semi-manufactured goods, which is a positive indicator for the chemicals industry.

Confidence about the coming twelve months rose to its highest point in nearly three years.

Some factors could still weigh on sentiment, as further job cuts were made in December, extending the current period of decline to 20 months, most notably in Germany.

This could show that, although manufacturing achieved some bounce back in the second half of 2020, a full economic recovery may take more time.

Thumbnail picture: Cars waiting to be shipped at the UK port of Southampton. Source: NEIL HALL/EPA-EFE/Shutterstock