“Demand will not recover anytime soon” in the Eurozone, latest PMI data suggests

The latest PMI index for the Eurozone stood at 45.8 points. This is yet another setback for those hoping for an economic rebound in Europe. The July result remains well below the 50-point mark that indicates an expansion of industrial activity.

“The widespread belief that the recovery in the Eurozone would significantly accelerate in the second half of the year has not materialised. At the beginning of the year, it seemed the sector would recover from the downturn, but doubts that emerged in June have been exacerbated by a further decline in July,” comments Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Additionally, there are no indications of an imminent rebound. The sub-index for new orders reached its lowest level in three months. It should be noted that new order activity has been below the growth threshold since May 2022.

The decrease in new orders has led to accelerated declines in production and increased job cuts. July saw the sharpest year-on-year decline in production for 2024 so far. The reduction in new orders has caused companies to focus primarily on reducing production backlogs.

As a result of the decline in orders, manufacturing companies have also reduced their level of purchases, requiring fewer raw materials and semi-finished products.

Moreover, employment in the Eurozone experienced the strongest decline since December 2023, with job losses continuing consistently for the past 14 months.

Pessimism in the Eurozone

Producers’ sentiments about the future are also not optimistic. Their outlook was at its lowest level in four months, marking the first decline in producer sentiment since last October. Despite the poor situation in the manufacturing sector, the survey participants had previously been quite optimistic about the future, hoping for an imminent rebound in demand. However, this optimism faded somewhat in the July survey.

Another concerning signal is the fastest increase in production prices in a year and a half, indicating continued cost pressure on entrepreneurs. This pressure is exacerbated by the fact that, for now, they are not passing on the increased prices of production inputs to customers.

Dr. de la Rubia emphasises that this situation means lower profits, which will ultimately lead to cuts that will impact investments and undermine the foundation for future growth.

Regarding deliveries, the waiting time for ordered products has shortened slightly. However, the pace of improvement in delivery times was the weakest in six months. The ongoing crisis in the Red Sea and increased travel times to Europe from Asia have undoubtedly influenced this situation.

Manufacturing PMI index in the euro area (points)

07/23	08/23	09/23	10/23	11/23	12/23	01/24	02/25	03/25	04/25	05/25	06/26	07/24
42.7	43.5	43.4	43.1	44.2	44.4	46.6	46.5	46.1	45.7	47.3	45.8	45.8

Even the leading countries from previous PMIs suffered setbacks

Most of the Eurozone economies surveyed recorded declines. Even Greece and Spain, the countries that were growth leaders for most of the year, saw their PMI index drop to 53.2 points and 51 points, respectively. For Greece, this is the weakest result in seven months, and for Spain, the weakest in six months. Despite this, the manufacturing sectors in these two countries are still performing relatively well.

The same cannot be said for the two largest economies of the Eurozone, Germany and France. The index dropped to the lowest levels in three and six months, respectively, with France at 44 points and Germany at 43.2 points.

The only countries surveyed that reported an increase in the index were Italy and Ireland. Thanks to this, Ireland managed to exceed the 50-point threshold, indicating growth. The Netherlands was slightly below the growth limit at 49.2 points, which was the lowest reading for this country in six months.

Dr. de la Rubia is not optimistic about the immediate future.

“Demand will not rebound in the near future, he states directly.”

He added that the July declines are a big surprise for analysts and mean that the industry in Europe will face challenging months ahead.

“Considering the weak data, we will most likely be forced to lower our GDP growth forecast for this year from 0.8 percent,” concludes the chief economist of Hamburg Commercial Bank.

A long road to recovery in Germany

The dire condition of the industry in Germany is particularly worrying. The July PMI index reading of 43.2 points was 0.3 points lower than in June. This is not only clearly below the 50-point threshold, which signifies an increase in economic activity, but also below 44 points, indicating shrinking industrial production.

The PMI index for the German manufacturing sector has been below 50 points for 25 months, the longest such sequence since 1996. All the issues described in the Eurozone index analysis were also evident in Germany. New orders dropped the most in three months, leading to a sharp decline in production. Employment in the industry has also been falling for thirteen months, with July experiencing the fastest rate of decline since March.

Although the prices of production inputs did not increase as in the Eurozone, the pace of price reduction slowed down significantly and was the weakest since the beginning of 2023. Expectations for the future of German manufacturers, which reached their highest level since the outbreak of the war in Ukraine in June, fell to the lowest level in three months by July.

Dr. de la Rubia is forthright in his assessment:

“The industry will probably not rebound before autumn,” he says.

He also adds that the recent poor performance of German industry has led Hamburg Commercial Bank to reduce the forecast for Germany’s economic growth from 0.5 percent to 0.2 percent in 2024.

Dr. de la Rubia emphasizes that historically, German producers have benefited from growth in emerging markets. This time, however, that is not the case. Meanwhile, Chinese producers are seeing significant increases in export orders.

“This confirms the theory that competition from China is becoming stronger,” concludes Dr. de la Rubia.

Manufacturing PMI index in Germany (points)

07/23	08/23	09/23	10/23	11/23	12/23	01/24	02/25	03/25	04/25	05/25	06/26	07/24
38.8	39.1	39.6	40.8	42.6	43.3	45.5	42.5	41.9	42.5	45.4	43.5	43.2

Poland against the grain

However, the signals coming from Poland are completely different from those in the Eurozone. In July, Polish industry was swimming against the current of European declines. The PMI index for Poland recorded a significant jump in July, from 45 points in June to 47.3 points, indicating a clear slowdown in declines.

“The latest result of 47.3 points is still quite far from the level of growth, but it compares favorably with the preliminary data for the Eurozone, Germany, and France, comments Trevor Balchin,” economic director of S&P Global Market Intelligence.

However, a positive signal cannot change reality. The truth is that the industrial sector in Poland shrank for the twenty-seventh month in a row, the longest sequence since research began in 1998. New orders, production, exports, purchases, and employment continued to decline. However, a positive sign was that in each case, the rate of decline decreased compared to June.

For example, although new orders fell for the 29th month in a row (the longest sequence in history), the pace of decline was slower than the average for that period. The same trend was observed with export orders and production.

The pace of purchasing activity also slowed down significantly. Moreover, there has been renewed stockpiling in the sector, with inventory levels increasing for only the second time in the last two years. This results from the accumulation of means of production before the expected increase in their prices.

Inflationary pressure remained weak, although a slight increase in the prices of production inputs was visible. However, final product prices continued to decline.

PMI index for Polish industry (points)

07/23	08/23	09/23	10/23	11/23	12/23	01/24	02/25	03/25	04/25	05/25	06/26	07/24
43.5	43.1	43.9	44.5	48.7	47.4	47.1	47.9	48	45.9	45	45	47.3

Still reasons for optimism in Poland?

Polish entrepreneurs are nonetheless more optimistic than their Western counterparts.

Companies’ expectations regarding production prospects for the next 12 months remained positive in July, although slightly less optimistic than in May and June.

Companies linked the anticipated growth to new customers, the introduction of new products, a general improvement in the economic situation, and funds from the National Reconstruction Plan (KPO).

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