The global site of the UK's leading magazine for automation, motion engineering and power transmission
22 June, 2024

Twitter link

EU manufacturing expands for the first time in 17 months

03 August, 2020

The Eurozone manufacturing economy recorded its first growth in 17 months during July with output and demand recovering as Covid-19 restrictions eased further. After accounting for seasonality, the IHS Markit Eurozone Manufacturing PMI (Purchasing Managers' Index) registered 51.8, up from 47.4 in the previous month – a figure higher than 50 indicates a move into positive territory.

The modest improvement in operating conditions was the first recorded by the survey since February 2019. The best-performing country was Spain with a July PMI of 53.5, representing a 27-month high. Austria with a PMI of 52.8 hit a 19-month high, while France on 52.4 recorded a 22-month high. Italy (51.9) registered a 25-month high and Germany (51.0) was at a 19-month high. Two notable underperformers were Greece on 48.6 (a two-month low) and The Netherlands on 47.9 (a four-month low).

In the key German market, there was a sharp rebound in new orders, linked to an release of pent-up demand and a wider recovery in activity, both domestically and abroad. Companies reported a rise in export sales, while the expansion in order book volumes was the sharpest since January 2018. Exports increased more modestly.

However, with output often still below pre-crisis levels, German manufacturers continued to make deep cuts to employment. The rate of job losses accelerated and was among the fastest since 2009. The combination of a sharp rise in new orders and lower employment contributed to a first, small, rise in work backlogs since August 2018.

Driving the Eurozone upturn were returns to growth in both production and new orders. A marked expansion in output across the region was the first registered by the survey since the start of 2019, while the gain in new orders was the first in nearly two years and the strongest since early 2018.

The data points to improved demand from both domestic and international markets. New export orders rose for the first time since September 2018, although growth was modest.

European manufacturers are continuing to operate below capacity. Work backlogs fell during July for a 23rd month, albeit only slightly, while there were further job losses – the 15th successive month that employment has fallen.

Ups and downs: the Eurozone manufacturing PMI moved into positive territory for the first time in 17 months during July
Source: IHS Markit

Looking ahead to the coming 12 months, business confidence across the Eurozone continued to recover in July, reaching its highest level since January. Companies are hoping that the recent positive trends in activity and new work will continue with a broader recovery. Sentiment was most positive among firms in Italy, with Greek and French manufacturers being the least optimistic.

“Eurozone factories reported a very positive start to the third quarter, with production growing at the fastest rate for over two years, fuelled by an encouraging surge in demand,” comments Chris Williamson, chief business economist at IHS Markit. “Growth of new orders, in fact, outpaced production, hinting strongly that August should see further output gains. The order book improvement has also helped restore business confidence about the outlook in July to January’s pre-pandemic peak.

“The job numbers remain a major concern, however, especially as the labour market is likely to be key to determining the economy’s recovery path,” Williamson adds. “Although the rate of job losses eased to the lowest since March, it remained greater than at any time since 2009, reflecting widespread cost-cutting in many firms where profits have been hit hard by the virus outbreak. Increased unemployment, job insecurity, second waves of virus infections and ongoing social distancing measures will inevitably restrain the recovery.

“The next few months numbers will therefore be all-important in assessing whether the recent uplift in demand can be sustained, helping firms recover lost production and alleviating some of the need for further cost cutting going forward.”

  • To view a digital copy of the latest issue of Drives & Controls, click here.

    To visit the digital library of past issues, click here

    To subscribe to the magazine, click here



"Do you think that robots create or destroy jobs?"



Most Read Articles