S&P Global Releases May HCOB Eurozone Manufacturing PMI

The May HCOB PMI survey from S&P Global has marked the third consecutive month where the well-documented decline in factory output has slowed, signalling incoming stabilisation in European manufacturing. 

The HCOB Eurozone Manufacturing PMI is a monthly measure of the overall health of eurozone factories, compiled by S&P Global. Overall health rose from 45.7 in April to 47.3 in May, with softer contractions in exports, purchasing activity and total new orders. 

While May’s number remains below the 50.0 no-change threshold, it's still the highest reading in the headline index since March 2023.

This indicates some recovery for the health of the euro area goods-producing sector.

“This could be the turning point for the manufacturing sector,” said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

“The industry is on the verge of halting the production decline that has persisted since April 2023. This is largely supported by more favourable trends in intermediate and capital goods.”

Concerns surrounding the deindustrialisation of European manufacturing continue, as many energy-intensive industries cease production and millions of jobs are lost.

Factors like the long-lasting economic impact of the COVID-19 pandemic, aggressive decarbonisation initiatives and reindustrialisation strategies from foreign companies have eroded Europe’s manufacturing capacity.

Now, we are seeing a promising slow of this deterioration, and the potential the sector may stabilise to create a foundation for positive growth.

“ More companies are reporting positive developments in order intakes from both domestic and international markets, although this is still being offset as a larger proportion saw declines in May,” added Dr Cyrus de la Rubia.

Whilst improved Manufacturing PMI figures were seen across the majority of the countries covered by the survey, there were marked differences between countries. Germany and France, the two largest economies in the single-currency union, saw decline slow.

However, Germany still remains the Eurozone’s worst-performing manufacturing sector. Dr. Cyrus de la Rubia explains why this information must be put into its broader context. 

“Germany might soon be ready to overtake its main Eurozone competitors,” he says. 

“Although Germany’s HCOB Manufacturing PMI remains the lowest of the four major Eurozone economies, it is close behind Italy. Italy, as of lately considered an outperformer, has seen its situation deteriorate. France follows closely, as its industrial sector has improved less than that of its northern neighbour.”

Meanwhile, Spain and the Netherlands registered the best improvements in factory operating conditions since 2022, accelerating their expansion.

"Spain however, remains out of reach for now, being the only one of the Euro-4 countries with a growing industrial sector,” adds Dr Cyrus de la Rubia.

Greece notably retained the top PMI health ranking despite its growth halting to a four-month low. 

May brought a near stabilisation of production across the eurozone despite a fall in factory output. This finding is impressive considering new export sales and orders decreased, inhibiting production lines through the second quarter.

Manufacturers in the eurozone faced the weakest rate of contraction in two years. 

Backlogs of work have been reduced as subdued demand has led eurozone factors to utilise outstanding orders as a method to support output. There was also a continued decrease in employment across the sector, though this is amid evidence of surplus capacity. 

S&P Global also reported a modest shrinking of purchasing activity in the second quarter of May, though back in September 2022 this was at its softest.

Because the latest survey data pointed to an ongoing successive monthly reduction in the pre-production inventories of eurozone manufacturers, this shrinking in part indicates sufficient input stock levels. 

The HCOB PMI survey also indicated increasing improvement in lead times for deliveries of raw materials and production items. While input costs fell again, their decline was marginal and the slowest over the subsequent period. 

Manufacturers in the eurozone also report a month-on-month reduction in the cost of goods leaving the factory gate.

They express strong optimism concerning their production prospects for the next twelve months. S&P Global reports that this positive sentiment was the highest since February 2022- far above the series average.

“Optimism is growing, but companies remain cautious,” added Dr. Cyrus de la Rubia on the outlook of eurozone manufacturers.

"They continue to reduce personnel and hold back on purchasing intermediate goods. This caution may also be reflected in the accelerated decrease in inventories of produced goods. This suggests that some companies were surprised by recovering demand, which they couldn't or didn't want to immediately meet with increased production.”

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