Industrial PMIs rose in most of the countries surveyed. The downward trend slowed in Germany and France, the euro zone's largest economies, with Germany remaining the worst performer. In contrast, Spain and the Netherlands turned around and saw their industrial sector grow at its strongest since 2022. Greece remained the best performer, although growth slowed to its lowest in four months.
Germany may soon be on the verge of overtaking others: despite the big jump in the HCOB PMI, Germany remains last among the four major eurozone countries, close behind Italy, which until recently held the upper hand and has seen its situation deteriorate significantly.
France follows closely behind, although its industrial sector has not improved as much as Germany's in recent months. Only Spain seems unable to catch up so far: it is currently the only one of the four eurozone countries with a growing industrial sector, commented Dr. Silas de la Rubia, chief economist at the Hamburg Merkbank.
Eurozone production broadly stabilised in May. Although it fell again, the decline was minimal and the lowest in more than a year. A fresh decline in orders continued to act as a brake, but the decline was the smallest in two years.
New export business recorded its smallest loss since May 2022. Backlogs were again cut sharply to support production as demand remains weak, but at the lowest rate since August 2022.
Employment in euro zone industry fell for the 12th straight month as overcapacity persisted, but job cuts remained moderate, as in April. Purchasing volumes fell at the slowest rate since September 2022 in May as inventories were fully filled.
In fact, input inventories fell for the 16th consecutive month. Delivery times for raw materials and other production inputs shortened again. Purchase prices also fell again in May, but this time the decline was only slight and was the lowest rate since the price decline began in March 2023. Selling prices were also reduced again.
This was the highest reading since February 2022, and business prospects for this year are again above average optimistic.
Do you see any light at the end of the tunnel?
Germany's HCOB Purchasing Managers' Index rose for the second consecutive month in May to 45.4 points (April: 42.5). Although the index is still below the growth threshold of 50.0 points, it reached its second highest level in the past 15 months.
The biggest positive impact came from orders, the decline of which was not only weaker than in April but also the smallest in the past two years. Demand, especially from China and the United States, increased again. Production was also cut less sharply, resulting in the smallest decline since May 2023. Manufacturers of intermediate goods also recorded a solid increase.
There is finally light at the end of the tunnel. The global manufacturing environment had already been brightening in recent months, and now that light seems to be gradually spreading to German manufacturing as well. According to De la Rubia, the production index made a strong jump towards 50 points in May, indicating that companies are on average hardly reducing their production, after a consistently large decline over the past 12 months.
Backlogs continue to decline sharply, but the related index rose to a 20-month high. Manufacturing employment fell again, with the rate of decline unchanged from the previous month. Despite job cuts, manufacturers are feeling more optimistic about growth opportunities this year. Outlooks have improved for the third consecutive time, reaching their highest level since February 2022, boosted by hopes of lower interest rates.
Inventories of both finished goods and intermediate materials fell sharply again in May. Purchase volume was the first small decrease since September 2022, but exceeded the decrease in production volume. In May, purchasing prices fell due to competition between suppliers, and the deflation rate accelerated for the first time in six months.
Meanwhile, delivery times have improved again, but the improvement was the smallest in the past three months. In order to attract new orders, many manufacturers have offered price cuts, which were reflected in the 12th drop in selling prices, which remained almost unchanged from the previous month.
Finally, the logistics index for May 2024 compiled by the German Logistics Association (BVL) and the Munich-based Ifo Institute also showed another upward trend, reaching its highest value in a year. The companies surveyed assess their current business situation as better than in the recent past. However, skepticism about the business outlook for the next six months remains and the mood across the industry remains subdued.
