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PMI shows slow growth in France and Germany holding back Eurozone’s industrial output

Some countries in the Eurozone are slowly beginning to pick up their industrial activity, but the two largest EU economies remain in stagnation.

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According to the S&P Global Market Intelligence PMI, Europe’s industrial sector is still struggling to dig itself out of the hole. The PMI index for the Euro area decreased slightly in March compared to February. In the last month of the first quarter, it was 46.1 points, 0.4 points less than in February.

The decline was mainly caused by the two least important sub-indices. Firstly, the waiting time for deliveries has significantly shortened (which is negative because it signals weak demand), and the level of purchases has dropped.

A certain positive sign is the fact that the level of production and new orders fell at the lowest rate in many months. In the case of production from April 2023, and new orders have seen a slowdown in declines for five months. As far as export sales are concerned, overall for the Eurozone countries, it dropped the weakest in almost two years.

Nevertheless, it has been exactly 12 months since production levels in the Euro area have been on a downward trend. Due to falling purchases, the trend of reducing stocks of means of production accumulated during the pandemic continued. These decreased for the fourteenth month in a row. The prices of both means of production and final products fell. The latter, however, is much stronger as companies try to compete with prices in a market characterised by low demand.

The south is growing as the north weakens

For another month in a row, the “green light” of industry in the Eurozone is Greece, once the EU’s whipping boy in terms of economic situation. With a score of 56.9 points, this country is clearly above the neutral barrier of 50 points, separating the increase in industrial activity from its decline. In general, the European south is doing quite well in the current period of slowdown. Above the 50-point mark are also Spain and, for the first time in a year, Italy.

It is possible that the Netherlands and Ireland will also be in the growth zone in the coming months. The PMI index in these countries amounted to 49.7 points and 49.6 points, respectively. In the case of the Netherlands, it was the best result in 19 months. For many countries, the slowdown is over.

Even though other countries are recording an increase in industrial activity or are approaching expansion territory, the total result for the Euro area is far from the results of the leaders. It is being dragged down by the two most powerful European economies – France and Germany. While the former boasts a result within the average range (46.2 points), Germany’s result is dramatically low (41.9 points).

Awaiting an economic rebound

“Over the last eight months, the manufacturing sector has been gradually climbing the PMI ladder. However, it is still on the stairs leading from the basement to the ground floor. However, the move to a higher level cannot materialise, mainly due to the poor condition of the industry in Germany and France,” concludes Dr. Cyrus de la Rubia.

Sentiment regarding the future in the Euro zone reached its highest level in almost a year (since April 2023). However, historically speaking, they are still quite low. Dr. de la Rubia claims that the recession in the Eurozone’s manufacturing sector will continue.

As he emphasises, four countries – Germany, France, Italy, and Spain – together constitute three-quarters of the Eurozone industry. Of the four “cylinders,” as Dr. de la Rubia calls them, the two most powerful are not working. Moreover, the expert is very worried about the ongoing decline in new orders, which is now approaching the record longest period of decline in this indicator. This does not allow industrial activity to rebound, says Dr. de la Rubia.

Broken “cylinder”

The mood is still negative in the EU’s largest economy. In March, the PMI index for German industry dropped to 41.9 points from February’s 42.5 points. The latest reading was the lowest in 5 months. This is the second month of decline in a row. Hopes for an economic recovery in 2024 have so far been dashed. Additionally, the index reading remains not only well below the neutral level of 50 points but is also clearly below the 44-point mark, meaning shrinking industrial production.

“The German manufacturing sector has been in recession since around the middle of last year, and the latest PMI data signal another contraction of the sector in the first quarter of 2024. Worse still, the slowdown is very broad, affecting both capital goods as well as intermediate and consumer goods,” said Dr. Cyrus de la Rubia, chief economist of Hamburg Commercial Bank.

The rate of decline in new orders and production has weakened once again, which is a positive sign, but it does not change the fact that there is still no growth in these categories. Export sales continued to decline, although at the weakest pace in 11 months.

The decline in the main index accelerated mainly due to lower employment (the poor situation in the industry is already translating into layoffs), weakening purchasing activity of enterprises, and improvement in on-time deliveries. This last factor cannot be entirely considered beneficial as it results largely from the low demand for imported raw materials or means of production.

However, the expectations of representatives of the German manufacturing sector are more optimistic than in previous months. They count primarily on an improvement in demand, especially in the second half of the year. The mood in Poland is different, although it is far from ideal. However, compared to Germany, it looks very positive.

“The difference between the Polish and German PMI is the largest since mid-2012 and is one of the largest in history,” emphasises Trevor Balchin, economic director of S&P Global Market Intelligence.

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