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Eurozone Manufacturing Economy Returns to Growth in July

Steel News - Published on Tue, 04 Aug 2020

Image Source: Manufacturing
The euro area's manufacturing economy recorded its first growth in a year-and-a-half during July as output and demand continued to recover in line with the further easing of restrictions on activity related to the global coronavirus disease COVID-19. After accounting for seasonality, the IHS Markit Eurozone Manufacturing PMI® registered 51.8, up from 47.4 in the previous month and an improvement on the earlier flash reading. Whilst modest, the overall improvement in operating conditions signalled by the PMI was the first such occurrence recorded by the survey since February 2019. Moreover, growth was widespread, with all market groups registering PMI readings above 50.0 during July. Consumer goods was the bestperforming, registering is strongest expansion for over a year-and-a-half.

Key findings:
Final Eurozone Manufacturing PMI at 51.8 in July (Flash: 51.1, June Final: 47.4)
Gains in both output and new orders recorded during July
Severe job cutting continues as firms continue to operate below capacity

Countries ranked by Manufacturing PMI: July
CountryJul PMIComent
Spain53.527-month high
Austria52.819-month high
France52.4 (flash: 52.0)22-month high
Italy51.925-month high
Germany51.0 (flash: 50.0)19-month high
Greece48.62-month low
Netherlands47.94-month low

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

Spain was the strongest-performing nation overall, registering its highest PMI reading for over two years. Slower, but nonetheless solid gains were seen in France and Austria, whilst modest growth was registered in Germany and Italy.

Driving the overall upturn in the euro area manufacturing economy during July were returns to growth in both production and new orders. For output, the marked expansion was the first registered by the survey since the start of 2019 whilst the gain seen for new orders was the first in nearly two years and the strongest since early-2018.

Latest data pointed to improved demand from both domestic and international markets. New export orders rose for the first time since September 2018, although growth was modest and notably lagged that of overall new work.

Despite returns to growth of both output and new orders, latest data implied that firms continued to operate below capacity. Backlogs of work declined during July for a twenty-third successive month, albeit only slightly, whilst firms again made cuts to their workforce numbers. Latest data marked the fifteenth successive month that employment has fallen, with the degree of job shedding again considerable and historically sharp.

Manufacturers continued to signal a preference for utilising existing inventories in production during July, with latest data showing the sharpest cut to stocks of purchases for six months. Higher production requirements and ongoing reductions in purchasing activity were the primary factors placing downward pressure on stocks. Latest data showed that the buying of inputs was cut for a twentieth successive month, albeit to a much weaker degree.

A reluctance to purchase additional inputs was in part driven by ongoing supply-side delays. July’s survey indicated that average lead times deteriorated for a sixth successive month, albeit to the weakest degree in that sequence.

On the price front, input prices remained inside deflationary territory for a fourteenth successive month, although the degree to which costs fell was the lowest in over a year. Competitive pressures and still weak demand meant that output charges were again cut. The decline was, however, marginal and the weakest recorded since August 2019.

Finally, looking ahead to the coming 12 months, business confidence continued to recover in July, rising since June to its highest level since January. Firms are hoping that the recent positive trends in activity and new work will continue with a broader recovery from the pandemic. Sentiment was at its highest amongst firms in Italy. Greek and French manufacturers were the least optimistic.

Chris Williamson, Chief Business Economist at IHS Markit said "Eurozone factories reported a very positive start to the third quarter, with production growing at the fastest rate for over two years, fuelled by an encouraging surge in demand. Growth of new orders in fact outpaced production, hinting strongly that August should see further output gains. The order book improvement has also helped restore business confidence about the outlook in July to January's pre-pandemic peak. The job numbers remain a major concern, however, especially as the labour market is likely to be key to determining the economy’s recovery path. Although the rate of job losses eased to the lowest since March, it remained greater than at any time since 2009, reflecting widespread cost-cutting in many firms where profits have been hit hard by the virus outbreak. Increased unemployment, job insecurity, second waves of virus infections and ongoing social distancing measures will inevitably restrain the recovery. The next few months numbers will therefore 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."

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Posted By : Yogender Pancholi on Tue, 04 Aug 2020
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