Eurozone in trouble
Industrial performance in the euro area deteriorated sharply in June, recording the sharpest decline in production since the start of the year.
S&P Global's euro zone manufacturing PMI index fell to 45.8 points from 47.3 points in June. Sub-indexes such as new orders and purchasing activity fell at an accelerating pace, marking the biggest drop since January. Industrial employment also fell for the 13th consecutive month.
The economic downturn has affected almost all countries in the euro area: Greece, which had previously been the leader in positive growth, saw its index fall to its lowest in six months, Spain and the Netherlands saw growth trends slow, while Germany's industrial sector has consistently been the weakest economic performer.
““Indeed, all euro area countries' PMI indices, except Italy, worsened in June. However, we see this as a temporary phenomenon rather than a sign of a longer-term economic slowdown,” stressed Dr. Cyrus de la Rubia, chief economist at the Hamburg Merkbank.
Interestingly, Dr. Silas de la Rubia noted that recoveries continue in other parts of the world, such as the US, UK and India, providing a favourable environment for Eurozone producers. Optimism about future business developments remains strong, suggesting confidence for the coming quarters.
Germany is struggling
Germany's comparable PMI index fell to 43.5 in June, down from a four-month high of 45.4 points in May.
The negative outlook was unexpected as there had been hopes in May that Germany might finally be recovering, but the June figure saw sub-indices of production, orders and employment fall to their lowest in two months.
German companies are facing a double blow: a worsening domestic economy and falling orders from other European markets and China – trends that are bad for foreign trade, the foundation of the German economy.
““Weak export orders to German manufacturers are worrying at a time when manufacturing is recovering, albeit slowly,” Dr de la Rubia said.
Dr de la Rubia also suggested that growing competition from China, which exports manufactured goods globally while domestic demand weakens, could also be a factor, meaning fewer exports to China and more competition in emerging markets.
““We live in a structurally different world to the 2010s and businesses need to adapt rather than hope for the good old days,” Dr de la Rubia concluded.
Poland's continuing decline
Meanwhile, in Poland, another major European manufacturing country, the industrial sector continues to struggle. The country's S&P Global manufacturing PMI index has remained below the neutral level of 50 points for the 26th consecutive month. Poland's industrial PMI for June was 45 points, in line with May's figure and below the average trend of 45.5 points since May 2022.
All sub-indices declined, including new orders, production, inventories, purchasing activity and employment. New orders fell for the 28th consecutive month, the longest consecutive decline on record, but the rate of decline slowed slightly. Supplier order fulfillment times improved for the third consecutive month, and inventories of purchased goods declined for the 15th consecutive month.
Production fell for the 26th consecutive month, and the fastest rate of decline in eight months. Finished goods inventories fell for the fifth time in 2024. Purchasing activity also declined, extending the current record period of declines to 25 months and the fastest pace of decline in four months. The employment rate has fallen for 25 consecutive months, the longest stretch since 2004, although the pace of layoffs has slowed slightly.
Trevor Balchin, director of economics at S&P Global Market Intelligence, said the consistency in the PMI levels points to a rapid deterioration in the economy.
““While the pace of declines in new orders and employment slowed slightly, this was offset by a sharp decline in production volumes. Companies obtained lower prices from suppliers but had to pass on lower prices to customers due to pent-up demand. Product prices have been falling since April 2023 and increased slightly in May,” Balchin said in a statement.
The text is based on an original by Natalia Jakubowska from Trans.INFO
