Manufacturing sector in the eurozone continues to show improvement

The euro area manufacturing sector continues to show signs of improvement, the latest HCOB Eurozone Manufacturing PMI report has found, with the headline PMI reaching 49.4 in May.

This is up from 49.0 in April, marking a 33-month high for the PMI, and bringing it closer to the 50.0 threshold that indicates a stable market.

Production increase

According to the report, this is the third month in a row that manufacturing production has risen in the eurozone, with demand for goods showing signs of stabilisation after a period of contraction. In addition, companies were ‘less aggressive’ in terms of cutting back employment, input purchasing and stocks.

Business sentiment among manufacturing firms rose to its highest level since February 2022, and currently stands above the historical average.

Eurozone countries to report improving conditions included Greece, the top performer during May, and Spain, which returned to expansion after three months of decline. In France, the PMI rose to a 28-month high, while Germany remained the weakest performer, albeit with its goods-producing sector reporting the softest decline in three years.

Looking ahead, the data indicates a ‘pick-up in business confidence’ across the euro area manufacturing sector.

Continuing recovery

“The upward trend in the headline PMI is still continuing, pointing towards a recovery that is progressing,” commented Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “That is backed up by the rise in production we have seen since March.

“What is especially encouraging is that production has picked up across all four major eurozone economies, which really highlights how broad-based this recovery is. With output rising for three months in a row, historical patterns suggest there is a 72% chance we will see another increase in the next month. Of course, one big risk on the horizon is the possibility of the US significantly hiking tariffs on EU imports. That could definitely cast a shadow over the outlook.

“Still, companies are noticeably more upbeat than they were last month about producing more a year from now, which shows a certain resilience, even in the face of potential protectionist moves from across the Atlantic.” Read more here.