Steep drops in output and new orders in the Eurozone manufacturing sector during May have led to further job losses, as the deepening downturn spreads from the peripheral countries to core ones. The seasonally adjusted Markit Eurozone Manufacturing PMI has fallen to a near three-year low of 45.1 in May, down from 45.9 in April. The PMI has signalled contraction in each of the past ten months.
The only country to signal an expansion of even modest note in May was Ireland. The Austrian PMI slipped closer to stagnation whilst all the other nations covered by the survey saw contractions. Germany, France and Spain all had the lowest PMI levels since mid-2009, while the downturn in the Netherlands accelerated to its fastest in five months. Though rates of contraction eased slightly in Italy and Greece, they remained steeper than the Eurozone average. Spain replaced Greece at the bottom of the euro PMI league table for the first time since January 2010.
Countries ranked by Manufacturing PMI (May)
Ireland 51.2 2-month high
Austria 50.2 5-month low
Netherlands 47.6 5-month low
Germany 45.2 35-month low
Italy 44.8 2-month high
France 44.7 36-month low
Greece 43.1 8-month high
Spain 42.0 36-month low
Manufacturing production dropped at the steepest rate since June 2009 as companies reported weaker demand from both domestic and export markets. New export orders fell to the greatest extent since November last year, reflecting both slower global economic growth and lower levels of intra-Eurozone trade. Germany, Spain and Greece all reported especially marked reductions in new export orders. Ireland was the only nation to report an increase in either total order books or new export business.
Weaker operating conditions and strong competition meant that manufacturers continued to focus on cost reductions in May, resulting in manufacturing employment falling for the fourth consecutive month. Rates of job cutting accelerated in Germany, France, Spain and the Netherlands, with Greece posting the steepest overall cuts. Despite the job cuts, the survey saw a further marked reduction in backlogs of work, pointing to the existence of surplus operating capacity relative to workloads.
Subdued market demand and strong competition meant that Eurozone manufacturers’ average selling prices were broadly unchanged in May. France, Italy, Spain and Ireland all saw slight reductions, while further steep price discounting was signalled in Greece. Companies in Germany, the Netherlands and Austria managed to buck this broader trend, and implemented modest increases.
Chris Williamson, Chief Economist at Markit, says that “the rate of decline is nowhere near as severe as that seen at the height of the 2008-09 crisis, but the situation is nevertheless deteriorating at an alarming rate. The data suggest that the sector is contracting at a quarterly rate of around 1%, suggesting that manufacturing will act as a major drag on economic growth in the second quarter”. He believes that, in the absence of any resolution to the crisis, the fall in the euro sends a glimmer of hope, providing a much needed boost to beleaguered exporters. “But, with new export orders falling at the fastest rate for six months in May, there is little sign yet of any beneficial impact.”