Manufacturing activity in the eurozone rose in April, according to new data from S&P Global, with the headline Eurozone Manufacturing PMI rising to 52.2 from 51.6 in March.
This was the highest level for the Eurozone Manufacturing PMI in 47 months, reflecting an improvement in operating conditions across the sector.
The S&P Global Eurozone Manufacturing PMI Output Index was also up, to 52.3, its highest level for eight months.
‘Cause for alarm’
“Although the PMI has risen to its highest for nearly four years, the survey is more a cause for alarm than celebration,” commented Chris Williamson, chief business economist at S&P Global Market Intelligence. “Production and order books are being buoyed by the building of safety stocks as a result of widespread concerns over supply shortages and rising prices emanating from the war in the Middle East.
“Look instead to the survey’s future output expectations index for a truer picture of the economic situation that is developing in the eurozone. Manufacturers’ optimism about the year ahead has sunk to its gloomiest for nearly one-and-a-half years, the war having shattered the growing confidence that had been building earlier in the year.”
The expansion in eurozone manufacturing activity in April was supported by a rise in new orders, which grew at the fastest pace in four years. Export demand also increased, marking the first expansion in new export orders in more than four years.
Survey respondents reported that customers brought forward purchases in anticipation of higher prices and potential supply disruptions. This led to a rise in purchasing activity by manufacturers, which reached its highest level since mid-2022.
All eight euro area countries included in the survey recorded PMI readings above the 50 threshold, indicating expansion. Ireland and the Netherlands reported the strongest growth, while France, Italy and Spain also recorded increases in activity. Germany, meanwhile, saw a slower rate of growth compared with the previous month.
Supply chain and cost pressures
At the same time, supply chains came under pressure. Longer delivery times were reported due to increased ordering, logistical disruption linked to the war in the Middle East, and reduced availability of raw materials. Inventory levels declined, although at a slower rate than in March.
Cost pressures intensified during the month. Input price inflation rose to its highest level in almost four years, while output prices increased at the fastest rate since January 2023. Manufacturers reported passing higher costs on to customers, contributing to a rise in selling prices. Elsewhere, employment in the sector also continued to decline.
‘Not going to persist’
As Williamson added, there is currently a “danger that policymakers may be lulled into complacency about economic growth in the face of these stronger headline PMI numbers, but there is a clear signal from the survey that this growth is not going to persist. On the other hand, the survey data also suggests that coming inflation shock may be greater than many have been anticipating, creating a major dilemma for rate setters.
“To put the price shock in perspective, the jump in manufacturers’ selling price inflation in April was the sharpest recorded since eurozone PMI survey data was first available in 1997, reflecting the need to pass sharply higher costs onto customers. Over the two months since the war started, the jump in input cost inflation has been far larger than anything previously recorded over the survey’s near-three-decade history.” Read more here.
