The ongoing growth slowdown of the eurozone manufacturing economy continued at the start of the fourth quarter.

Falling for a third month in succession and remaining well down on the record highs seen around the turn of the year, the IHS Markit Eurozone Manufacturing PMI declined to a level of 52.0 in October. That compared to 53.2 in September and was broadly unchanged on the earlier flash reading of 52.1.

Market groups data showed that the slowdown in growth was broad-based. Intermediate goods producers fared worst recording concurrent falls in output, new orders and exports. Consumer goods showed some resilience, registering solid rises in both output and new work.

Countries ranked by Manufacturing PMI: October

Netherlands                        57.1                    21-month low

Ireland                               54.9                    7-month low

Austria                               53.8                    25-month low

Greece                               53.1                    6-month low

Germany                 52.2 (flash: 52.3)           29-month low

Spain                                  51.8                   2-month high

France                     51.2 (flash: 51.2)           25-month low

Italy                                  49.2                    46-month low

Slower manufacturing growth was recorded across much of the single currency area in October.

Most notably, Italy slipped into contraction territory, registering its lowest PMI reading in just short of four years. Growth in Germany was the weakest in nearly two-and-a-half years, whilst France and Spain registered only modest gains in manufacturing activity.

In contrast, the Netherlands continued to record strong growth, though even here the pace of expansion was the lowest in 21 months. Ireland, Austria and Greece all continued to record solid, but slower, rates of expansion.

The downturn in overall growth was closely linked to a deterioration in overall order books. Although marginal, the net fall in new work was the first recorded by the survey since November 2014 and was closely linked to the weakening global trade cycle. This was highlighted by a decline in new export orders for the first time since mid-2013. By country, declines in export sales were recorded in Austria, France, Germany and Italy, whilst there were notable slowdowns in export growth seen in the Netherlands and Ireland.

Despite the fall in new orders, the manufacturing sector nonetheless recorded a net increase in production during October. However, growth was modest and the weakest since December 2014. An excess of production relative to new order book flows led to a marginal rise in warehouse inventories and a slight reduction in manufacturers’ backlogs of work.

Employment growth was sustained in October but continued to slow, easing to the weakest recorded by the survey since December 2016. Although all nations recorded higher employment, growth rates varied noticeably. Austria, Germany and the Netherlands continued to register the strongest net gains in employment, in contrast to broad stagnation in France. Only modest jobs growth occurred in Italy and Spain.

Meanwhile, input price pressures intensified on the back of rising energy, food, fuel and metals prices. Latest data showed input price inflation accelerating since September and remaining at an elevated level. Output charges were raised where possible in response, with the net increase remaining historically marked, albeit the lowest in 14 months.

Finally, business confidence slumped in October to the lowest level since the end of 2012. There remained widespread worries amongst manufacturers with regards to the development of global trade protectionism measures, potentially higher tariffs and ongoing political uncertainties. All nations recorded a fall in confidence, with German manufacturers recording outright pessimism for the first time in four years.

* Includes intra-eurozone trade.

Comment

Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“Concerns about the Eurozone manufacturing sector intensified at the start of the fourth quarter. The headline PMI fell to its lowest since August 2016, signalling a further slowing in the rate of expansion. New orders fell into decline for the first time in almost four years as trade woes escalated. Export sales fell for the first time in over five years.

“Moreover, the survey suggests that the manufacturing sector could contract in the fourth quarter unless the data revive in coming months. However, with backlogs of work falling for a second successive month, and business expectations sliding to the lowest for nearly six years, risks seem firmly tilted towards the downside heading towards the end of the year.

“While there was some evidence that the autos sector acted as a drag again in October, with car makers struggling with new emission regulations, the manufacturing sector’s problems look broad-based. Growing risk aversion, linked in turn to worries about the global economic environment, trade war worries, political uncertainty and rising prices, appears to be hitting demand for a wide variety of goods. The steepest drop in output and orders was seen in the intermediate goods sector, which comprises suppliers of inputs to other manufacturers.

“The combination of destocking, deteriorating order books and drop in business optimism will add to concerns that growth risks are shifting to the downside rather than being “broadly balanced”, as indicated by the ECB.”

-Ends-

For further information, please contact:

Chris Williamson, Chief Business Economist
Telephone +44-20-7260-2329
Mobile +44-779-5555-061
Email chris.williamson@ihsmarkit.com

Joanna Vickers, Corporate Communications
Telephone +44 207 260 2234
Email joanna.vickers@ihsmarkit.com

Paul Smith, Economics Director
Telephone +44-1491-461-038

Email paul.smith@ihsmarkit.com