Eurozone Manufacturing PMI falls to 18-month Low in June

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The euro area manufacturing upturn slowed further at the end of the second quarter. The final IHS Markit Eurozone Manufacturing PMI posted an 18-month low of 54.9 in June, down from 55.5 in May and the earlier flash estimate of 55.0. The PMI has signalled a weakening in the pace of expansion in each month since the turn of the year, as manufacturers have experienced a synchronised easing in growth of both production and new order volumes.

PMI readings moved lower in five of the nations covered by the survey, including the two best performers (Netherlands and Austria). Weaker expansions were also seen in Germany, France and Greece, with France dropping to the bottom of the growth league table. Third-placed Ireland saw growth pick up to a five-month high, while a mild acceleration in Italy was insufficient to prevent it registering the second-worst overall performance. The pace of expansion was unchanged in Spain.

Output and new order growth have both eased sharply since the end of 2017. In June, the rates of expansion in production and new business were the weakest since November 2016 and August 2016 respectively. This in turn had an impact on business optimism, which slumped to its lowest level in over two-and-a-half years.

The easing was widespread by sector, with output and new order growth slowing across the consumer, intermediate and investment goods segments. Producers of investment goods registered the strongest rates of increase in both measures.

June data signalled that growth of new export orders* remained relatively mild and substantially weaker than at the start of the year, despite picking up slightly since May. Exporters are becoming increasingly concerned about the potential impact of tariffs and other trade restrictions on growth. The fastest rates of increase in new export business were seen in the Netherlands, Greece and Ireland. Growth slowed in Germany, Spain and Ireland.

Manufacturing employment continued to increase in June, with the rate of job creation ticking higher. Staffing levels were raised in all of the nations covered by the survey, with rates of increase strengthening in Germany, Italy and Ireland. Expansions were registered across the consumer, intermediate and investment goods sectors, with the steepest gain in the latter.

Companies linked higher employment to rising production and increased backlogs of work. However, the rate of expansion in outstanding business eased to a 22-month low, mainly reflecting the slowdown in new order growth.

Input price inflation across the eurozone manufacturing sector rose to a four-month high in June. Further widespread lengthening of suppliers’ delivery times – a key indicator of demand for inputs outstripping supply – meant vendors were often able to raise their charges. Manufacturers also mentioned higher oil and fuel costs.

In contrast, output charge inflation eased to a nine-month low in June, but remained strong nonetheless. Increases in both input costs and output prices were sharper in the intermediate and investment goods sectors compared to those seen at consumer goods producers.

Comment

Commenting on the final Manufacturing PMI data, Chris Williamson, chief business economist at IHS Markit said:

“Eurozone manufacturing reported its weakest expansion for one-and-a-half years in June, with risks clearly tilted towards output growth waning further in coming months.

“Production growth has weakened markedly since the end of last year, and new order inflows have slowed even more. Manufacturers may therefore need to rein-in their production further to adjust to the recent downturn in order book growth unless demand revives.

“The biggest concern is the extent to which export order book growth has cooled since the start of the year, and could soon go into decline. The survey reveals mounting worries from companies relating to the impact of tariffs and trade wars, suggesting firms are bracing themselves for the potential for further export losses. Not surprisingly, business expectations for future production deteriorated in June to the lowest November 2015.

“At the same time there are signs that political uncertainty is also dampening business spirits, most evidently in Italy, which was consequently the second-worst performer of all countries surveyed in June ahead of France.”