FX.co ★ Eurozone Manufacturing Activity Posts Slower Contraction

In May, the decline in manufacturing activity within the eurozone eased as production approached stabilization and new orders decreased at a slower rate amid improving business sentiment, according to the final HCOB survey results from S&P Global released on Monday.

The manufacturing Purchasing Managers' Index (PMI) rose to 47.3 in May from 45.7 in April, slightly below the flash estimate of 47.4. Despite remaining below the neutral 50.0 mark, the reading was the highest since March 2023, indicating the slowest deterioration in the manufacturing sector in over a year.

Production almost stabilized in May, with factory output falling at the slowest pace in just over a year. New orders saw the slowest decline in two years. As demand remained subdued, factories relied on outstanding orders to support production, resulting in the weakest rate of backlog depletion since August 2022. Employment continued to fall, extending the period of factory job losses to a year, though the rate of decrease was consistent with April and remained moderate.

Purchasing activity continued to decline, but at the slowest pace since September 2022, partly due to sufficient input stock levels and a reduction in manufacturers' pre-production inventories.

On the pricing front, the PMI survey revealed that input costs decreased in May, continuing the downward trend that started in March 2023. There was also a further reduction in the price of goods leaving the factory gate.

Manufacturers' optimism regarding production prospects for the next twelve months improved, reaching the highest level of positive sentiment since February 2022.

Most of the countries in the currency bloc reported improvements. Germany and France experienced slower contractions, while Spain saw accelerated growth. In contrast, Italy faced its most significant deterioration in five months.

The survey highlighted significantly slower declines in both German output and new orders compared to April. Germany's final HCOB manufacturing PMI reached a four-month high of 45.4 in May, up from 42.5 in April, matching the flash estimate.

Although France's manufacturing sector continued to struggle with sustained weakness in new orders, overall activity contracted at a slower pace in May. The PMI for France stood at 46.4 in May compared to 45.3 in April, slightly below the preliminary reading of 46.7.

Italian manufacturers reported a sharp reduction in order book volumes, leading to decreased production. The PMI for Italy fell to a five-month low of 45.6 in May from 47.3 in April.

Conversely, increased production and new orders led to accelerated manufacturing growth in Spain. The PMI for Spain rose to a 26-month high of 54.0 in May from 52.2 in April.