Source: Markit Economics

The Markit Final Eurozone Manufacturing PMI  (Purchasing Manager's Index) at 54.2 in February, up from 52.4 in January, was at its highest reading since August 2007 and was above the neutral 50.0 mark for the fifth successive month. The 1.8 points rise in the index was the largest improvement since last August. The headline PMI - - a composite index based on measures of production, orders, employment, inventories and supplier performance - - was also slightly above the earlier flash estimate of 54.1. Activity in the sector accelerated in Germany while output in Spain, Ireland and Greece fell.

Growth of output was recorded for the seventh successive month in February. The rate of expansion was the fastest since March 2007 and above the earlier flash estimate. Production increased in the capital, consumer and intermediate goods sectors. The strongest rise was recorded for investment products, with growth in this sector the quickest since June 2007. However, national PMI data pointed a widening disparity between the best and worst performing manufacturing economies. Germany registered the strongest growth of output, overtaking France. The rate of increase in Germany accelerated for the second month running to its highest since January 2007. Growth also picked up in Austria, was broadly unchanged in the Netherlands but eased in France and Italy. Meanwhile, the downturns in Spain, Ireland and Greece continued. Rates of contraction in Spain and Ireland were marginal and much slower than in January, whereas Greece fell further behind the other euro area nations, seeing its sharpest fall in production since last April.

New orders rose at the fastest pace for three years in February and at a quicker rate than that indicated by the earlier flash estimate. The recovery in new export orders also gained traction, with the rate of growth similarly the highest since February 2007, led by robust gains at investment goods producers. Increased demand was linked to improving global market conditions, the rebuilding of inventories at clients and the weaker euro. Trends in total new orders at the national level were broadly similar to those for output, with Germany recording the fastest growth (a 46-month high) and Greece seeing a substantial decrease (the sharpest for ten months). Greece was also the only nation to report a decrease in new export orders.

Although an outright recovery in employment was not recorded in February - - staffing levels fell for the 21st consecutive month – the rate of reduction was the weakest since August 2008 and slower than the earlier flash estimate. With the exception of Greece, all of the nations covered by the survey reported reduced rates of decline. In a sign that job losses may slow further in coming months, backlogs of work rose for the fourth month running.

Purchasing activity increased to the greatest extent for 32 months in February, with growth mainly centred on the capital and intermediate goods sectors. Rising demand for raw materials exerted additional pressure on the already low stock holdings of suppliers, leading to further delivery delays. Lead-times increased to the greatest extent since October 2006.

Supply-chain factors resulting from the combination of rising demand for certain inputs and low inventories at vendors drove average purchasing costs higher in February. There were also reports of increased fuel and energy prices. Measured overall, input costs rose for the fifth successive month, with the rate of increase accelerating sharply to a near one-and-a-half year high. It was also faster than the earlier flash estimate. The big-3 of Germany, France and Italy reported the sharpest rates of inflation.

Markit said strong competition prevented firms from passing on higher costs to their clients. Average factory gate prices fell for the 16th consecutive month, albeit to the weakest extent during that period. The squeeze on companies’ operating margins was further emphasised by the PMI Input Costs Index rising above the Output Price Index to the greatest extent since August 2008. With the exception of Germany – where charges rose for the first time in 16 months – all of the countries covered reported reductions in output prices. Finally, both raw material and finished goods inventories were depleted further in February, with the rates of reduction remaining faster than their respective series averages.

Source: Markit Economics

Commenting on the PMI data, Markit Chief Economist, Chris Williamson said: “The Eurozone PMI suggests that the surprising weakness of industrial production seen in the official data at the end of last year will prove to be a temporary set back, and that the recovery continued to gain momentum in February. So far, Q1 is looking like the strongest quarter of manufacturing output growth since Q2 2007. The acceleration has been driven by exports being boosted by the euro’s weakness as well as domestic customers restocking their warehouses.

“However, worrying national disparities persist, highlighting differences in competiveness. Germany has moved into pole position for the first time in two years, followed by Austria, France and the Netherlands. But PMIs for Spain, Ireland and Greece remain in contraction territory, with Greece seeing a worrying increase in its rate of deterioration. It was also the only country to suffer an ongoing fall in exports.”

The Eurozone Manufacturing PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of around 3,000 manufacturing firms.