Eurozone’s industry starts 2018 on healthy note, but slows down from December

01 February 2018 11:52 Source:ICIS News

LONDON (ICIS)--Eurozone manufacturing sector growth slowed in January from December’s record highs but remained at healthy rates, with prices strengthening and business confidence booming, analysts at IHS Markit said on Thursday.

Meanwhile, the UK’s industry started the year Markit’s Purchasing Managers’ Index (PMI) stood in January at 55.3 points, down from December’s 56.2 points. A reading above 50.0 points represents economic expansion, while a reading below shows contraction.

The 19-country eurozone’s PMI stood in January at 59.6 points, down from 60.6 points in December.

All major economies posted solid rates of growth, with Germany at 61.1 points, France at 58.4 and Italy at 59.0.

Spain, the Netherlands and Austria posted manufacturing growth at 55.2, 62.5 and 61.3 points.

“Sector data signalled solid growth across the consumer, intermediate and investment goods categories, with the steepest rates of expansion in the latter two. This was despite consumer goods being the only category to see growth accelerate during the latest survey month,” said Markit.

“The Netherlands PMI rose to a series-record high in January, taking it to the top of the euro area rankings. Italy also saw growth improve, to an 83- month high, while the Greek PMI moved to its highest level in over a decade [55.2 points, a 123-month high].”

Companies surveyed by the analysts reported solid growth in orders both domestically and for export markets, while the prices they are charging to their customers increased, helping their margins.

However, the “inflationary pressures” mentioned by Markit in the manufacturing sectors did not match the first estimate for inflation in the eurozone in January, which according to Eurostat came in at 1.3%, down from 1.4% in December, and still far from the European Central Bank (ECB)’s target of close to, but below, 2%.

“Inflationary pressures picked up at the start of 2018, with both output charges and input prices rising at faster rates. Output price inflation accelerated to an 80-month high,” it said.

“Purchasing costs rose to the greatest extent in over six-and-a-half years, reflecting higher commodity prices (including oil) and greater pricing power at vendors. The latter factor was the result of shortages developing for some inputs as demand outstripped supply. This also led to one of the sharpest lengthening of supplier lead times on record.”

Employment continued to fare well, and accumulates 41 months of growth, and notable rises in staffing levels were reported by firms in Austria, the Netherlands and Germany. Employment may be set to improve further as companies are aiming to continue increasing capacities on the back of increasing backlogs of work.

Markit’s chief economist Chris Williamson said that prices were also set to increase further and may help increase overall consumer inflation. In his view, the “shift to a sellers’ market” in the eurozone was accompanied in January by a steep rise in crude oil prices, which will also add inflationary pressures to the economy.

Outside the eurozone but inside the wider 28-country EU, the UK’s manufacturing sectors posted a decline in activity to 55.3 points, down from December’s 56.2, as growth in output and new orders weakened.

Inflationary pressures also increased – inflation in the UK stood in December at 3% – as the economy is still absorbing sterling’s depreciation following the referendum on EU membership in 2016.

However, the UK’s figures for manufacturing remain well above the historic average of 51.7 points, while a positive sign for the country’s economy in January came from export orders, with increased sales both to EU partners and overseas.

“[The UK’s] Job creation remained strong, as optimism rose to its highest level for two years, even though orders from the domestic market were overshadowed by one of the biggest spikes in export orders in four years,” said Duncan Brock, director at the Chartered Institute of Procurement & Supply, which compiles the UK’s PMI together with Markit.

“Along with the strength of the global economy and investment by the sector in marketing and product launches, this is setting manufacturing up for a successful year ahead.”

Pictured: Industrial plant at Rotterdam’s harbour. The Netherlands’ industry topped the PMI table in January
Source: WestEnd61/REX/Shutterstock

By Jonathan Lopez