The performance of the euro area manufacturing sector remained subdued at the start of the third quarter. Although the final IHS Markit Eurozone Manufacturing PMI ^® posted 55.1 in July, unchanged from the earlier flash estimate, this was only a minor recovery from June’s 18-month low of 54.9 and over five points below the record high registered at the end of 2017.

Sector data signalled that business conditions improved across the consumer, intermediate and investment goods sectors, with mild growth upticks signalled in the latter two. Similar to the trend at the all-manufacturing level, rates of expansion were weaker than at the turn of the year in all three sub-industries.

Countries ranked by Manufacturing PMI: July

Netherlands                      58.0                    14-month low

Germany                 56.9 (flash: 57.3)         2-month high

Austria                                56.8                    2-month high

Ireland                                56.3                    2-month low

Greece                               53.5                    Unchanged

France                     53.3 (flash: 53.1)         2-month high

Spain                                  52.9                    11-month low

Italy                                     51.5                    21-month low

July saw the Netherlands, Germany and Austria remain the strongest-performing nations. Growth improved slightly in the latter two, but eased to a 14-month low in the Netherlands. Rates of expansion also slowed in Italy, Spain and Ireland, whereas an acceleration was registered in France.

Eurozone manufacturing output increased again in July. Despite a mild improvement, the rate of expansion was the second-weakest since November 2016. The more subdued trend in output growth in recent months reflects a concurrent slowdown in the pace of increase in new orders. The latest rise in new business was identical to the 22-month growth low registered in June.

Inflows of new work have been stymied recently by a weakening trend in the pace of increase in new export orders, amid uncertainty about the economic outlook and worries about tariffs and trade wars. July saw new export business increase at the slowest pace since August 2016. Weaker growth was seen in Italy, the Netherlands, Greece and Ireland, while France and Austria saw exports decline. Although Germany and Spain saw improved expansions, these were much weaker than those registered at the start of the year.

Work-in-hand (but not yet completed) continued to increase in July, although the pace of expansion eased to its weakest for two years. Companies responded to the ongoing pressure on capacity by increasing employment, with staffing levels rising for the forty-seventh successive month.

All of the nations covered by the survey registered an increase in employment during July. Similar to the trend in output growth, the fastest job creation was recorded in Austria, the Netherlands and Germany. Only France, Austria and Greece saw staffing levels rise at quicker rates than in June.

Price pressures remained elevated in July, with input costs and output charges both rising at above survey-average rates. That said, purchase price inflation was slightly weaker than in June, while the increase in output charges was the least marked since September 2017. Increases in input costs were linked to tariffs, trade wars, supply-chain delays and raw material shortages.

Business optimism about future business conditions improved slightly, as companies retained confidence that output levels would be higher in one year’s time. However, the overall degree of positive sentiment remained among the lowest seen over the past two years. Business confidence improved in Germany, France, Italy and the Netherlands.

* Includes intra-eurozone trade.

Comment

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

“A marginal uptick in the PMI provides little cause for cheer given it is the second weakest number for more than one-and-a-half years. The past two months have seen the most subdued spell of factory output growth since late-2016. Worse may be to come. Even this reduced rate of output growth continued to outpace order book growth, resulting in the smallest rise in order book backlogs for two years. The clear implication is that manufacturers may have to adjust production down in coming months unless demand revives.

“Clues to the current soft patch lie in the export growth trend, which has deteriorated dramatically since the start of the year across all member states to reach a near-two year low, with France and Austria seeing exports fall into decline in July.

“The survey responses indicate that the slowdown likely reflects worries about trade wars, tariffs and rising prices, as well as general uncertainty about the economic outlook. Optimism about the future remained at one of the lowest levels seen over the past two years.”

-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

Rob Dobson, Director, Economics
Telephone +44-1491-461-095

Email rob.dobson@ihsmarkit.com