Eurozone manufacturing sector moves towards stabilisation in June

According to the report from IHS Markit, in line with the continued easing of global coronavirus disease (COVID-19) restrictions on economic activity, the severe downturn in the eurozone manufacturing economy continued to ease in June. 

The seasonally adjusted IHS Markit Eurozone Manufacturing PMI strengthened to a four-month high of 47.4, up from 39.4 in May and an improvement on the earlier flash reading. Posting an increase of eight points since May, the PMI recovered further from April’s nadir. Nonetheless, the headline index has now recorded below 50.0 for 17 successive months and remains consistent with the sector facing challenging operating conditions.

There was some divergence in trends, however, by market group. Both intermediate and investment goods continued to contract, but there was a return to growth amongst consumers goods producers. 

Manufacturing output declined only modestly in June and to a much lesser degree when compared to the considerable falls seen in recent months. However, production continues to be undermined by ongoing weakness in new order books: June’s survey again showed a notable reduction in total new orders (albeit at the weakest pace for four months). New export sales were also down, declining for a twenty first month and at a noticeable pace.

Latest data indicated that firms continued to operate well below capacity during June, with backlogs of work outstanding falling for a twenty-second successive month – and again at a severe rate (despite easing since May).

Purchasing activity also remained depressed in June, with manufacturers choosing to reduce their buying of inputs for a nineteenth successive month. Firms signalled a preference for wherever possible to utilise existing stocks as they battled to free up working capital. Inventories of both inputs and stocks of finished goods subsequently declined during June.

Finally, confidence about production in the year ahead returned to positive territory during June, and to its highest level in four months. Positive sentiment was linked by manufacturers to hopes that the further easing of lockdown measures will support a return to sales and demand growth in the coming year.