Eurozone Manufacturing Sector Returns To Growth

The euro area manufacturing sector returned to growth in July for the first time in a year-and-a-half as output and demand continued to recover with the further easing of restrictions related to the coronavirus disease, final data from IHS Markit showed Monday.

The manufacturing Purchasing Managers’ Index rose to 51.8 in July from 47.4 in June. This was also above the flash reading of 51.1.

Both production and new orders returned to growth in July. The marked expansion in output was registered for the first time since the start of 2019 and the growth in new orders was the strongest since early 2018.

Nonetheless, firms continued to operate below capacity and employment decreased for the fifteenth straight month.

On the price front, the survey showed that input prices remained inside deflationary territory. Due to competitive pressures and weak demand led to another cut in output charges.

Finally, looking ahead to the coming 12 months, business confidence continued to recover in July, rising since June to its highest level since January.

Chris Williamson, chief business economist at IHS Markit, said the next few months numbers will be all important in assessing whether the recent uplift in demand can be sustained, helping firms recover lost production and alleviating some of the need for further cost cutting going forward.

At the country level, only Greece and the Netherlands registered PMI readings below 50.0 as the majority returned to growth in July.

Spain was the strongest-performing nation. France reported solid gain, while Germany and Italy reported moderate expansion.

Spain’s factory PMI came in at 53.5 versus 49.0 in June and the expected score of 52.0. Orders, purchasing and production all reported to be up, with demand higher in both domestic and international markets.

As firms continued to ramp up their operations after coronavirus-induced shutdowns, France’s final manufacturing PMI rose to 52.4 in July from 52.3 in June. The flash reading was 52.0. The improvement was driven by a marked expansion in output, which came despite a lack of new order growth.

Driven by a steep rebound in new orders, Germany’s headline IHS Markit/BME final manufacturing PMI rose to 51.0 in July from 45.2 in June. Production was ramped up but employment continued to fall sharply. The sector expanded for the first time since December 2018.

Italy’s manufacturing sector logged its strongest growth since June 2018. The PMI advanced more-than-expected to 51.9 from 47.5 in June. The expected reading was 51.2.

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