Eurozone manufacturing output returns to growth

The Eurozone's manufacturing sector strengthened in February, a closely-watched survey showed on Wednesday, as supplier bottlenecks eased.

The final S&P Global Eurozone Manufacturing PMI was 48.5 in February, compared to 48.8 a month previously, in line with estimates, while the manufacturing output index nudged above the neutral mark to reach 50.1, up from 48.9 in January.

It was the first time in eight months that output did not contract.

A reading below 50.0 indicates contraction, while one above it suggests growth.

Survey respondents reported that easing supplier bottlenecks and improved raw material availability had helped production schedules. Supplier delivery times shortened for the first time since January 2020, and by the greatest extent since May 2009.

The overall rate of input price inflation also eased, slowing to the weakest pace for almost two-and-a-half years, S&P Global noted.

Among member states, Italy recorded a PMI of 52.0 – a 10-month high – while Greece’s was 51.7 and Spain’s 50.7. Germany, the bloc’s largest economy, had a PMI of 46.3, a three-month low.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “A marginal expansion of output is welcome news.

“The brighter production picture first and foremost reflects a broad-based improvement in supply chains.

“Unfortunately, inflows of new orders continued to fall at a marked rate, reflecting persistent weak demand as customer spending remained subdued. Demand will therefore need to rise further in the coming months if production growth is to be sustained, breaking the reliance on backlogs of work.”

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said: “All told, the manufacturing PMI reports were decent, once the details were analysed, but we’re not getting ahead of ourselves. The Eurozone manufacturing output index still points to the downturn in manufacturing intensifying and industry being a drag on GDP growth in the first quarter.”

Mateusz Urban, senior economist at Oxford Economics, said: “Despite improvement in the sector, cost pressures, such as wages, continue to linger for firms. Crucially, as producers are still able to pass on most of the higher input costs to retail prices, core inflation is likely to decline only gradually this year, leading the European Central Bank to raise interest rates by an additional 100 basis points over next few months.”

The survey of a representative panel of around 3,000 manufacturing firms was conducted between 10 and 21 February.