HCOB Eurozone Manufacturing PMI

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Economic

Summary:

HCOB Eurozone Manufacturing PMI at 49.8 (Jun: 49.5). 36-month high.

Eurozone manufacturing output rises marginally again in July

Key findings:

● HCOB Eurozone Manufacturing PMI at 49.8 (Jun: 49.5). 36-month high.

● HCOB Eurozone Manufacturing PMI Output Index at 50.6 (Jun: 50.8). 4-month low.

● Production volumes tick up despite marginal decrease in new orders

Data were collected 10-24 July

The euro area manufacturing sector recorded a broad stabilisation of operating conditions at the start of the third quarter.Output growth was sustained, although the upturn was the softest since March, while new orders saw a fresh (albeit marginal)reduction amid a deterioration in export* demand. Positively, factory job shedding cooled to its least pronounced in almost twoyears.As for prices, input costs were unchanged and this was practically true for output charges too. There was a slight easing inyear-ahead growth expectations, although forecasts remained slightly above their long-term average.

The HCOB Eurozone Manufacturing PMI®, a measure of the overall health of eurozone factories compiled by S&P Global,edged up to a three-year high of 49.8 in July, from 49.5 in June. Posting only just below the 50.0 threshold, the latest figureindicated a near-stabilisation of operating conditions across the eurozone goods-producing sector.Of the euro area countries with Manufacturing PMI data available, Ireland had the strongest-performing factories in July, withgrowth slowing but remaining solid overall. Meanwhile, there were pick-ups in momentum across both the Netherlands andSpain, posting their fastest expansions in 14 and seven months, respectively. Greece continued its growth trend in July,extending the current sequence to two-and-a-half years. In the remaining countries, Manufacturing PMI prints rose butremained below the crucial 50.0 mark, signalling sustained but slower deteriorations on the month. Both Germany and Francesaw fractional increases in the headline PMI since June, with the former hitting its highest mark in close to three years. As forFrance, its manufacturing sector was tied with Austria as the worst-performing at the start of the third quarter.

The eurozone as a whole saw factory production levels rise in July, marking five successive monthly expansions. The increaseslowed slightly from June, however, and was the softest since March. Weighing on output was a fresh decline in new business.The deterioration in demand was small, but nevertheless the quickest in four months. Export sales were a drag on total ordervolumes, latest survey data revealed, with new work received from international clients falling after stabilising in the previousmonth.Meanwhile, eurozone manufacturers dampened their retrenchment efforts in the latest survey period. Both input purchasing andemployment moved closer to stabilisation during July, posting their slowest reductions in 37 and 23 months, respectively.July survey data pointed to a slight intensification of supply chain pressures as average input lead times lengthened for asecond month in a row and to the greatest extent since November 2022. At the same time, pre- and post-production stockscontinued to decrease, although rates of depletion softened.

The eurozone manufacturing sector registered stable prices during July. Input costs were unchanged, following three months ofdeclines, while prices charged saw virtually no movement.Looking ahead, eurozone goods producers remained optimistic of growth over the next 12 months. In fact, the overall level ofoptimism was just above its long-term average despite falling from June’s 40-month high.

Comment

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“Manufacturing in the eurozone is cautiously regaining momentum. It is primarily the smaller economies that offer reasonsfor optimism. The PMIs from Spain and the Netherlands indicate accelerated economic growth, while Ireland and Greeceremain in expansion territory. In the three largest economies as well as Austria, the PMI signals that the industrial recessionhas significantly eased. This broadens the scope of the recovery. With the newly agreed trade framework between the EUand the U.S., uncertainty should decline, and the signs point to a continued upward trend in the coming months.

“France is currently the biggest drag on growth in the eurozone’s manufacturing sector. It is particularly discouraging thatproduction in France has declined over the past two months, while employment has slightly increased during the sameperiod. The problem lies in the resulting drop in productivity, which makes economic growth even harder to achieve. InGermany, the situation is reversed: production is growing while employment is being reduced. France is also burdened bythe prospect of an austerity budget and the associated risk of the current government stepping down. This contrasts withGermany, where much of the growth hopes rest on expansionary fiscal policy and the political situation is significantly morestable than in France. Less political and fiscal uncertainty in the eurozone’s second-largest economy would be important tohelp the eurozone manufacturing sector achieve sustainable growth overall.

“Supply chains remain relatively strained. Delivery times have lengthened. Given the fragility of the recovery, it is notdemand that is causing customers to wait longer for their goods. Volatile U.S. tariff policies and uncertainty stemming fromgeopolitical tensions may play a key role here. We expect that companies will continue to face sudden supply chaindisruptions for the foreseeable future.”

Source:S&P Global

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