Eurozone Manufacturing Downturn Worsens In July

Euro area manufacturing slowdown worsened in July amid steeper declines in output, new orders and purchases, signaling that the economy is heading into a recession, final survey results from S&P Global showed on Tuesday.

Official data showed that the unemployment rate remained unchanged at a record low in June despite the weak economic activity.

The HCOB final factory Purchasing Managers’ Index, or PMI, slid to 42.7 in July, as initially estimated, from 43.4 in June.

The score posted beneath the critical 50.0 threshold which separates growth from contraction for more than a year. Data also suggested the sharpest deterioration in manufacturing conditions since May 2020.

The survey showed a considerable decrease in manufacturing output. The weakness was broad-based in manufacturing. Among the three main industrial groups, the intermediate goods sector posted a significant fall.

Demand conditions were also extremely weak. Capital goods producers registered the quickest fall in orders, followed by intermediate goods makers. Orders from foreign markets logged a steep reduction in July.

In line with the easing demand, manufacturers scaled back purchasing activity in July. Consequently, the stock of raw materials and semi-finished goods declined the most in over ten-and-a-half years.

As manufacturers turned to their backlogs of work to help sustain production volumes, the volume of orders pending completion fell substantially. Factory employment levels were reduced for a second straight month in July.

Further, average input delivery times shortened notably in July, marking a sixth consecutive monthly improvement in vendor performance.

Input prices declined again in July due to increased competition among suppliers. Prices fell at the fastest pace since May 2009. Manufacturers reduced their output prices at the strongest pace in almost 14 years.

Within big-four economies, Germany contracted the most since May 2020. At the same time, France and Italy, the second and third largest economies in the currency bloc respectively, recorded marked deterioration since June.

With the deepening declines in output, new orders and factory gate prices, Germany’s manufacturing sector downturn worsened in July. The PMI slid to 38.8, as estimated, from 40.6 a month ago.

Reflecting a sustained reduction in manufacturing activity, France’s manufacturing PMI declined to 45.1 in July from 46.0 in June. The flash estimate was 44.5.

The Spanish manufacturing sector also remained rooted in the negative territory. The manufacturing PMI unexpectedly declined to 47.8 in July from 48.0 in June. The reading was expected to rise to 48.3. Moreover, the score signaled the most pronounced contraction so far this year.

Italy’s manufacturing activity shrank again in July on historically steep falls in output and new orders. The index posted 44.5, down from 43.8 in June, and was slightly above economists’ forecast of 44.2.

Eurostat reported that the euro area unemployment rate came in at 6.4 percent in June, the same as in May and April. The rate for May was revised down from 6.5 percent.

Economists had forecast the rate to remain at 6.5 percent in June.

The number of unemployed decreased 62,000 from May to 10.814 million in June. Compared with the same period last year, unemployment was down 441,000.

At the same time, the youth unemployment dropped to 13.8 percent from 14.0 percent in May.

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