According to PMI® research data compiled by S&P Global, manufacturing output in the euro area contracted in every bar 2 of the past 22 months. The data is based on official statistics showing production in January was down about 7.0% compared to the same month last year. Excluding pandemic lockdowns, this was the steepest annual decline since 2009.
However, leading indicators suggest that production may stabilize and return to growth in the near future. In fact, production has already started to increase in all countries except France and Germany, and the economic slowdown in March eased to its lowest level in nearly a year.
Factory recession slows down
The HCOB Eurozone Manufacturing PMI® compiled by S&P Global showed factory output fell for the 12th straight month in March and for the 20th time in the past 22 months. However, the rate of contraction has slowed to an 11-month low, raising expectations that the sector will soon stabilize.
This outlook is further reinforced by three other key leading indicators.
Future production forecast is at the highest level in 11 months
First, companies participating in the PMI survey not only ask respondents to report on current production trends, but also how they expect their production to change over the coming year. These responses are converted into an index where 50 indicates no expected change, measurements above 50 indicate expected production expansion next year, and measurements below 50 indicate expected decline. indicate. In March, the forward-looking index rose to its highest level since last April, further improving from its recent low seen in October last year. While by no means an indication that production will increase significantly in the near term, improving production expectations are a further sign that the economic downturn will continue to ease, at least in the coming months.
Order production rate is at the highest level in 23 months
Second, new orders continued to decline in March, but the decline was the smallest on record for the year. Compared to production trends, the moderating rate of decline in the order book also portends production stabilization in the coming months. The order-to-production ratio, a leading indicator of production trends, rose in March, reaching its highest level in less than two years.
Order inventory rate is the highest in the past two years
The third bright spot is the order inventory ratio, which hit a 21-month high in March. Although the decline in new orders slowed in March, the pace of decline in raw material inventories is accelerating, a situation that typically leads to companies increasing their purchases of raw materials, including semi-finished products, by replenishing their warehouses.
Signs of new growth outside France and Germany
There was one further positive sign from the survey regarding the country breakdown of the data. Manufacturing production returned to growth in the Netherlands and Italy in March, joining Greece and Spain in expansion territory.
Thus, while France and Germany continue to contract, the rest of the region has already generally seen two consecutive months of modest production increases. Meanwhile, production slump in France has neared stabilization, with the country recording its smallest decline in 22 months. As a result, Germany has become the main drag on production within the region, and production continued to decline at a rapid pace in March. However, even here, the rate of decline slowed slightly in March.
Access the press release here.
Chris Williamson, Chief Business Economist, S&P Global Market Intelligence
Phone: +44 207 260 2329
chris.williamson@spglobal.com
Purchasing Managers Index™ (PMI)®) Data is compiled by S&P Global for more than 40 economies around the world. Monthly data comes from a survey of senior executives at private companies and is available by subscription only. The PMI dataset includes headline numbers that indicate the overall health of the economy and sub-indices that provide insight into other key economic factors such as GDP, inflation, exports, capacity utilization, employment, and inventories. Masu. PMI data is used by financial and corporate professionals to better understand where the economy and markets are heading and to uncover opportunities.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, an independently managed division of S&P Global.
