Eurozone manufacturing grows in October at fastest rate since 2011

02 November 2017 11:00 Source:ICIS News

LONDON (ICIS)--Manufacturing sector output growth reached its highest level since April 2011 in October, with economies in northwest Europe leading the productivity gains, analyst HIS Markit said on Thursday.

The eurozone manufacturing sector purchasing managers’ index (PMI) reached 58.5 points during the month, a 0.1 percentage point dip from flash estimates but an increase from the 58.1 points recorded in September and an 80-month high.

A PMI score of above 50.0 represents economic expansion.

The score is the second-highest for the currency union in nearly two decades, Markit added.

Manufacturing industries in Germany and the Netherlands both recorded PMI scores of over 60 points, at 60.6 and 60.4 respectively, while sector growth in Austria stood at 59.4.

However, supply chain pressure and input delays in Germany were among the worst on record, Markit added, as producers struggle to cope with demand levels, leading to intensifying delays on work and potential shortages of materials.

Germany has been the strongest-performing of the key eurozone economies in recent months, but input delays could serve to cap growth levels, according to Markit principal economist for Germany, Phil Smith.

“If they haven’t already done so, supply chain constraints have the potential to cap growth as manufacturers struggle to source the goods they need to keep up with demand,” he said.

Mediterranean economies also performed strongly during the month, with Italy manufacturing growth reaching an 80-month high at 57.8 points, and France and Spain growth standing at 56.1 and 55.8.

Eurozone GDP has been robust throughout the last 12 months, with GDP growth standing at 0.6% or above for each of the last four quarters.

The steadiness of the eurozone recovery, rising employment and strong industrial growth support the European Central Bank’s move towards dialling back its stimulus measures next year, according to Markit chief economist Chris Williamson.

However, the level of demand growth and the strain it is placing on supply chains across the region mean that raw material pricing could increase, he added.

“Outstanding orders rose to a degree never before exceeded in the [PMI] series’ 15-year history and supply chains are being stretched to the greatest extent since 2011, suggesting that pricing power is shifting toward a sellers’ market,” he said.

“Factory input costs and selling prices consequently rose at higher rates,” he added.

An exception to the EU’s economic boom in 2017 has been the UK, where fears over the impact of the country’s Brexit vote have stifled investment spending and weakened consumer spending.

PMI data for the country’s construction sector showed on Thursday a subdued return to growth at 50.8 points compared to a contraction at 48.1 in September, with housebuilding growth offsetting weaker civil engineering and commercial activity.

Sector outlook for the next 12 months also dropped to its weakest level since December 2012, Markit added.

Pictured: A Dutch windmill. The Netherlands and Germany's manufacturing sectors were the eurozone's best performing in October
Source: Eye Ubiquitous/REX/Shutterstock

By Tom Brown