Eurozone manufacturing PMI hits 5-month high

Growth in the eurozone manufacturing sector accelerated in January as supply chain issues started to ease, according to a survey released on Tuesday.

IHS Markit’s final eurozone manufacturing purchasing managers’ index rose to a five-month high of 58.7 from 58.0 in December, but this was below the initial estimate and expectations for a reading of 59.0.

A reading above 50.0 indicates expansion, while a reading below signals contraction.

Germany’s index was revised down from its initial estimate to 59.8 from 60.5, but remained above its level in December and at a five-month high. The index for France, meanwhile, was unrevised at 55.5 and broadly unchanged from its level in December.

Chris Williamson, chief business economist at IHS Markit, said: "Eurozone manufacturers appear to be weathering the Omicron storm better than prior Covid-19 waves so far, with firms reporting the largest production and order book improvements for four months in January. Prospects have also brightened, with a further easing in the number of supply chain delays playing a key role in prompting producers to revise up their expectations for growth in the coming year to the highest since last June.

"The improvement is by no means evenly spread across the eurozone, however, with resurgent growth in Germany, the Netherlands and Austria contrasting with slowdowns in Italy, Spain and Greece and near-stalled production in France."

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said the small downward revision to the headline EZ manufacturing index leaves it above its level in December but does not change the wider picture of a sector still struggling to keep up with demand.

"Over the course of last year supply struggled to cater for the post-opening surge in demand, as supply constraints and bottlenecks, all linked to the pandemic, held back output. Still, in January this year demand - measured by new orders - was rising at a rate above its long-run average fuelling a further rise in work backlogs.

"Admittedly, activity picked up pace - the manufacturing output PMI was at a four-month high - and input lead times lengthened at the slowest pace in December, in a sign that perhaps supply bottlenecks are easing. But delays are still much longer than before the pandemic hit."