Eurozone Manufacturing Activity Downturn Deepens In March

Eurozone manufacturing activity contracted further in March as the rising cost of living and tighter monetary policy took its toll on demand but record improvement in suppliers’ delivery times supported production, final data from S&P Global showed on Monday.

The manufacturing Purchasing Managers’ Index, or PMI, fell to a four-month low of 47.3 in March from 48.5 in February. Nonetheless, the score was above the flash estimate of 47.1.

The decline was mainly due to the Suppliers’ Delivery Times Index surging to a survey-record. The other key sub-components of the PMI namely output, new orders and employment were little-changed as a whole.

Manufacturing order books shrank again in March. Incoming new work decreased for the eleventh consecutive month and the rate of fall was broadly unchanged from February. New export orders also decreased but the pace of contraction was the softest since mid-2022.

Meanwhile, the survey signaled the strongest monthly performance in factory output since May last year. A survey-record shortening in suppliers’ delivery times boosted the supply of critical raw materials and components, and thereby supported greater production levels.

The current level of output is clearly not sustainable and it is inevitable that production will weaken in the coming months unless order book growth revives, Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

Due to the decrease in production requirements, manufacturers continued to reduce their input buying. The decline was the weakest for six months. Stocks of purchases registered a fall in March, marking a second successive monthly draw-down.

With rising production and falling new orders, manufacturers were able to process outstanding business at a faster pace in March. Consequently, the pace of backlog depletion was sharp.

Further, the survey showed that weak demand and reduced production requirements helped to ease supplier bottlenecks. Average vendor delivery times shortened to the greatest extent in the survey history.

Manufacturers lowered their prices in tandem with falling input demand. Factory gate charges continued to increase but the rate of output price inflation slowed to a 26-month low.

There was continued increase in staffing levels in March. However, the rate of job creation was moderate and little-changed since February. The overall rate of business optimism slipped to a three-month low.

The strongest manufacturing performances at the national level were again reported outside the ‘big-two’ of Germany and France. Greece registered the strongest improvement, followed by Spain and Italy.

Germany’s S&P Global/BME manufacturing PMI registered 44.7 in March, down from 46.3 in February. The reading was the lowest since May 2020. The flash reading was 44.4.

France’s manufacturing PMI edged down to 47.3 in March from 47.4 in February and also remained below the preliminary score of 47.7.

By contrast, the upturn in Spain’s manufacturing sector sharpened amid fresh new order growth and strong increase in output and employment. The manufacturing PMI unexpectedly rose to 51.3 from 50.7 in February. The reading was forecast to fall to 50.1.

Manufacturing activity in Italy continued to expand in March, underpinned by gains in output, new orders and employment. Nonetheless, the PMI dropped to 51.1 from February’s ten-month high of 52.0. The score was forecast to drop to 51.0.

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