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EU Economy Last Updated: July 01, 2015 - 10:35 AM

Eurozone manufacturing growth accelerates at end of second quarter
By Michael Hennigan, Finfacts founder and editor
July 01, 2015 - 6:35 AM


The growth rate of the Eurozone manufacturing sector continued to improve in June. This was highlighted by the final seasonally adjusted Eurozone Manufacturing PMI (purchasing managers' index) rising for the second month running to reach 52.5, its highest reading since April 2014. The June final reading was in line with the earlier flash estimate.

The performance of the manufacturing sector also made progress during the second quarter as a whole, with the average readings for the headline PMI and the indices tracking both output and new orders all at their highest levels since Q2 2014. June saw the Netherlands rise to the top of the PMI growth league table, pushing Ireland into second position. Spain and Italy also continued to register solid expansions, albeit at slower rates than in the prior month.

Positive signs also came out of Germany, France and Austria. Although PMI readings for these nations were consistent with only modest growth, they were nonetheless improvements on May. For France this also represented a move back into expansion territory following a 13-month sequence of contraction. The main negative from the latest survey was the deteriorating performance of the Greek manufacturing sector.

The Greek PMI dropped to its second-lowest reading in the past two years, as output fell at the quickest pace since June 2013. New orders were also down sharply, as domestic conditions weakened and new export business shrank at the steepest pace in 28 months. Job losses were recorded for the third month running.

June data signalled the joint-fastest growth of Eurozone manufacturing production in over a year, as the pace of increase in new orders matched May’s 13-month record. Companies benefitted from improved inflows of new work from both domestic and export clients.

The level of new export business* rose again in June, extending the current sequence of unbroken expansion to two years. Germany, Italy, Spain, the Netherlands, Austria and Ireland all registered growth of new export orders, while France registered only a negligible decrease. Jobs growth was registered in the Eurozone manufacturing sector for the tenth consecutive month in June.

Moreover, the rate of increase accelerated to its second-highest in almost four years, as companies responded to rising new order inflows and a moderate accumulation of backlogs of work. Employment rose in Germany, Italy, Spain, the Netherlands and Ireland. Cost inflation remained solid in June, despite slowing from May’s three-year high, reflecting recent oil price increases and rising import costs resulting from the euro’s depreciation.

Input price inflation accelerated in France, Italy, Spain, the Netherlands and Ireland, while costs increased in Austria for the first time since last September. Germany and Greece both reported sharp easings in their respective rates of cost inflation.

Meanwhile, average selling prices at Eurozone manufacturers rose for the second time in the past three months. Output charges rose in Germany, Italy, Spain and the Netherlands, but fell in the other nations covered by the survey.

*Including intra-Eurozone trade.

Chris Williamson, chief economist at Markit said:“A solid PMI reading for June rounded off euro area manufacturers’ best quarter for a year, representing a major improvement compared to the malaise seen at the end of last year.

“In an otherwise broad-based upturn, Greece remained the outlier, suffering the steepest drop in manufacturing output for two years as orders continued to collapse in a month of fraught discussions seeking to stave off default.

“However, the overall pace of expansion remains insipid rather than impressive. Although France’s factories have returned to growth for the first time in over a year, and the Netherlands, Ireland and Italy are all seeing especially strong rates of growth, the lacklustre rates of expansion seen in Germany and France mean the PMI is broadly consistent with Eurozone manufacturing output rising by a mere 0.3% in the second quarter, providing only a modest boost for the wider economic recovery.

“The pace of growth is especially disappointing given how accommodative financial conditions are at the moment, with record low interest rates and the ECB’s quantitative easing now well under way. However, this is perhaps not surprising given the heightened degree of uncertainty surrounding the Greek debt talks that was seen during the month, suggesting a resolution of the crisis will trigger stronger growth.”

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