Eurozone Manufacturing Activity Posts Slower Contraction

(RTTNews) - Downturn in the euro area manufacturing activity softened in May as production moved closer to stabilization and orders fell at a slower pace amid the rising business sentiment, final HCOB survey results from S&P Global showed on Monday.

The manufacturing Purchasing Managers' Index rose to 47.3 in May from 45.7 in April. The flash estimate was 47.4.

Although the reading was below the neutral 50.0 mark, it was the highest since March 2023, indicating the slowest deterioration of the manufacturing sector for over a year.

There was a near stabilization of production in May. Factory output dropped at the slowest pace in just over a year and new orders posted the slowest decrease in two years.

Backlogs of work continued to fall as subdued demand conditions led factories to use outstanding orders as a means to support output. The rate of depletion was the weakest since August 2022. Employment dropped further amid evidence of surplus capacity, extending the current period of factory job losses to a year. That said, the rate of decrease matched that seen in April and was moderate.

Purchasing activity continued to decline but the pace of decrease was the softest since September 2022. This partly reflected sufficient input stock levels and there was reduction in manufacturers' pre-production inventories.

On the price front, the PMI survey showed that input costs decreased in May, stretching the current sequence of decreases that commenced in March 2023. There was further reduction in the price of goods leaving the factory gate.

Manufacturers' optimism towards production prospects over the coming twelve months improved with the level of positive sentiment hitting the highest since February 2022.

The improvement was reported across the majority of the countries in the currency bloc. Germany and France registered slower contraction.

At the same time, Spain grew at a faster growth. By contrast, situation in Italy deteriorated the most in five months.

The survey showed that there were much slower declines in both German output and new orders than those seen in April. The final HCOB manufacturing PMI hit a four-month high of 45.4 in May, up from 42.5 in April and also matched the flash estimate.

Although France's manufacturing sector remained challenged by sustained weakness in new orders, the overall activity contracted only slowly in May. The corresponding indicator posted 46.4 in May compared to 45.3 in April. The preliminary reading was 46.7.

Italy's manufacturers reported a sharp reduction in order book volumes, which in turn lowered production. The HCOB manufacturing PMI slid to a five-month low of 45.6 in May from 47.3 in April.

On the back of increasing production and new orders, Spain's manufacturing growth accelerated in May. The PMI improved to a 26-month high of 54.0 from 52.2 in April.