The start of 2015 saw a modest growth acceleration in the eurozone manufacturing sector. The final seasonally adjusted Eurozone Manufacturing PMI (purchasing managers' index) posted in line with the earlier flash estimate of 51.0 and slightly above December’s level of 50.6.
Improvements in business conditions were seen in Germany, Spain, the Netherlands and Ireland during January, with solid growth again signalled for the latter three. Moreover, growth strengthened in Spain and the Netherlands.
The manufacturing downturns in France, Italy, Austria and Greece continued at the start of the year. The rates of contraction in France and Italy eased to near-stabilisation, but Austria and Greece registered steepening downturns.
Manufacturing production rose at the fastest pace for six months in January, underpinned by a mild increase in new order volumes and work on existing contracts. Concurrent growth of production and new business was registered in Germany, Spain, the Netherlands and Ireland.
Italy saw a slight gain in output for the first time since September 2014, and the rate of decline in France eased to the weakest in the current eight-month sequence of contraction. However, the continuing slump in new orders to both nations may act as an ongoing headwind in coming months. Output and new orders also declined in both Austria and Greece.
Eurozone manufacturers are facing a duel constraint of weak domestic demand and subdued export performance. The final quarter of last year and the start of 2015 have seen some of the weakest gains in new export business* since the recovery in foreign order inflows began in July 2013. Germany, France, Austria and Greece all reported declines in January, almost offsetting the solid gains seen elsewhere.
Eurozone manufacturing employment rose for the fifth successive month in January. The rate of jobs growth was in line with December’s eight-month high, but remained tepid nonetheless. Workforce numbers rose solidly in Spain and Ireland, while modest gains were signalled in Italy and the Netherlands. Jobs growth eased to near-stagnation in Germany and Greece, while further losses were highlighted in France and Austria.
The recent sharp declines in international oil prices drove average input costs down at the fastest pace for five-and-a-half years. The steepest reductions in purchase prices were signalled in the Netherlands (fastest since May 2009) Germany (fastest since July 2009), Austria and France (steepest in 30 months in both cases).
The trends in average purchase prices in Italy, Spain, Ireland and Greece also moved back into deflationary territory in January, following increases in December.
Lower cost pressures were partly reflected in average selling prices, as output charges fell for the fifth month running and to the greatest extent in over one-and-a-half years. However, the rate of decline in selling prices was substantially less marked than that signalled for input costs. None of the nations covered by the survey reported an increase in selling prices.
*Including intra-eurozone trade.
Chris Williamson, chief economist at Markit said: Eurozone manufacturing showed signs of pulling out of the doldrums at the start of the year, but the rate of expansion remained disappointingly meagre, vindicating the ECB’s decision to take drastic action to revive the economy.
"The ECB’s ‘bazooka’ of full-scale quantitative easing should boost the euro area economy via improved business and consumer confidence and the weakening of the euro. The currency’s fall should benefit exporting manufacturers in particular over coming months. Lower oil prices will also help reduce manufacturers’ costs, with reduced fuel costs also freeing up more consumer income to spend on goods.
"The survey also brought encouraging news that there are pockets of robust growth in Ireland, Spain and the Netherlands. However, Germany, France and Italy are more or less stagnating, and the economic situation in Greece has deteriorated, with its manufacturing sector contracting at the fastest rate for over a year as both exports and home demand fell during January.
"There is also a real possibility that the impact of the ECB stimulus could be compromised by uncertainty and instability arising from the unfolding political situation in Greece, which remains a major risk to the economic outlook for the region. Deflationary pressures also intensified, with average prices charged by manufacturers dropping at the fastest rate since mid-2013, falling in all countries, albeit linked mainly to producers often passing on lower oil prices."