Difficulties in the Eurozone
In June, the Eurozone experienced a sharp deterioration in industrial performance, recording the steepest decline in production since the beginning of the year.
June’s Eurozone Manufacturing PMI index fell by S&P Global fell from 47.3 to 45.8 points. The rate of decline in sub-indices such as new orders and purchasing activity accelerated, marking the sharpest drop since January. Employment in the industrial sector also fell for the thirteenth consecutive month.
The downturn affected nearly all Eurozone countries. Greece, previously a positive leader, saw its index fall to the lowest level in six months. Growth trends slowed in Spain and the Netherlands, while Germany consistently recorded the weakest economic performance in the industrial sector.
“Indeed, PMI indices for all Eurozone countries, except Italy, deteriorated in June. However, we view this as a temporary phenomenon rather than a sign of a prolonged slowdown,” emphasized Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
Interestingly, Dr. Cyrus de la Rubia did note that recovery continued in other parts of the world, such as the US, UK, and India, providing a favorable environment for Eurozone producers. Optimism about future business development remains strong, suggesting confidence about the coming quarters.
Germany up against it
The equivalent PMI index for Germany stood at 43.5 in June, down from May’s level of 45.4 points, the highest in four months.
The negative outlook was unexpected, as there were hopes in May that Germany might finally rebound. Instead, June’s reading was the lowest in two months, with declines in production, orders, and employment sub-indices.
German companies are facing a double blow; a poor internal economic situation and a reduced number of orders from other European markets and China. This trend is unfavorable for German foreign trade, which is a cornerstone of the German economy.
“Weak export orders for German manufacturers in a world where the manufacturing industry is recovering globally, albeit moderately, is worrying,” noted Dr. de la Rubia.
Dr. de la Rubia also suggested that increased competition from China, which is exporting its industrial products globally while its domestic demand weakens, could be a factor. This situation means lower exports to China and greater competition in emerging markets.
“We live in a structurally different world than the 2010s. Companies need to adapt rather than hope for the good old days,” concluded Dr. de la Rubia.
Persistent decline in Poland
Meanwhile, over in Poland, another major contributor to Europe’s manufacturing industry, the industrial sector continues to struggle. The country’s manufacturing PMI index by S&P Global remains below the neutral level of 50 points for 26 consecutive months. In June, the PMI for Polish industry was 45 points, consistent with May’s figure and below the average trend of 45.5 points since May 2022.
All subindices recorded declines, including new orders, production, inventory, purchasing activity, and employment. New orders fell for the twenty-eighth month in a row, the longest decline on record, although the rate of decline slowed slightly. Supplier order fulfillment times shortened for the third month in a row, and inventories of purchased items decreased for the fifteenth consecutive month.
Production volumes fell for the twenty-sixth time in a row, with the fastest rate of decline in eight months. Finished goods inventories fell for the fifth time in 2024. Purchasing activity also declined, extending the current record period of declines to 25 months, with the fastest pace in four months. Employment rates have been falling for 25 months, the longest period since 2004, though the pace of layoffs has slightly slowed.
According to Trevor Balchin, economic director at S&P Global Market Intelligence, the consistent PMI level indicates a rapid deterioration in business conditions.
“Although new orders and employment declined at a slightly slower pace, this was offset by a sharper decline in production volumes. Companies obtained lower prices from suppliers but had to offer lower prices to their customers due to pent-up demand. Product prices have been falling since April 2023, with a slight increase in May,” commented Balchin.
Text based on original by Trans.INFO’s Natalia Jakubowska
Photo: Kickaffe (Mario von Berg), CC BY-SA 3.0, via Wikimedia Commons