Surprise reversal for euro factories in June

MANUFACTURERS in the euro area have seen a change in fortunes throughout June, with German producers slipping by more than predicted and Spain stabilising.

According to Markit’s manufacturing purchasing managers’ indexes (PMI) for June, Spanish manufacturing saw no contraction for the first time in 26 months. Italy also saw the shallowest decline for 23 months, while German manufacturing saw a slight dip, the only nation using the currency to see a falling PMI score.

However, unlike many peripheral EU economies, German factories reported growth as recently as February, suggesting that the turnaround in economic fortunes may be short-lived.

Nonetheless, Christian Schulz, senior economist at Berenberg, was bullish about the prospect for the currency union: “On current trends, the end of recession in the crisis countries is approaching fast”.

“Spain and Italy’s PMIs have risen above Germany’s for the first time since the start of the acute phase of the Eurozone crisis in July 2011. Another sign that the crisis is gradually fading”, he added.

The overall manufacturing PMI for the Eurozone stands at 48.8 for June, the highest for 16 months, rising from 48.3 in May. Any PMI number below 50 indicates that a sector is shrinking. The Netherlands, France, Austria and Greece all saw improvements. More significantly, Irish manufacturing not only saw a return to growth, but the only increase in staffing levels.

Chris Williamson, Markit’s chief economist, also pointed to the potential end of the continent’s recession later this year: “Both output and new orders barely fell during June, and on this trajectory a return to growth for the sector is on the cards for the third quarter”.