Signs of life in struggling Euro manufacturing

THE EUROZONE’S largest economies saw their manufacturing downturn ease in May, as Markit’s purchasing managers’ index (PMI) ticked up in Germany, France and Italy.

Slower downturn for struggling EU manufacturers in May And there was even better news for Spain and Greece, two of the Eurozone’s most embattled economies. Greece’s PMI was at a 23-month high, with Spain’s jumping three and a half percentage points, to a two-year peak. The group of countries saw a 0.5 point bump in the reading generally.

The euro area’s manufacturing is still contracting, but is now doing so at a slower rate than it has for fifteen months. Markets had expected no change from April’s reading.

Falls in both output and new orders were milder last month than they had been in April, but domestic markets remained relative subdued.

Low input costs helped to drive the improvement, with prices for commodities and raw materials falling at the fastest pace for four years. Performance is still yet to bounce back significantly from the dreary results in March.

Markit’s chief economist, Chris Williamson, remained sceptical about the outlook for the euro area. He commented: “Despite final PMI coming in above the flash reading, the surveys still suggest that GDP is likely to have fallen 0.2 per cent in the second quarter”.

Manufacturing briefly appeared to have weathered the financial crisis, returning to decent levels of growth in 2010, but in 2011 the index began to register declining fortunes, and is yet to return to expansion.

Robert Wood, an analyst for Berenberg, voiced some pessimism on the positive figures: “risks still abound, with credit costly in the periphery”, adding that Japanese competitors would continue to gain from a devalued yen.

Last week, the European Commission reported that economic sentiment was picking up in the euro area, with improvements in consumer confidence and a revision of unemployment to a slightly lower level than was previously estimated.