Supply issues hinder Eurozone manufacturing

Eurozone manufacturing struggled last month, industry data showed on Tuesday, as supply constraints weighed heavily on the sector.

October’s IHS Markit Eurozone manufacturing purchasing managers' index came in 58.3. Although a reading above 50.0 indicates growth, the final PMI marked an eight-month low and was below the flash estimate and consensus, both for 58.5. It was also down on September’s reading of 58.6.

The decline was attributed to supply-side issues, which interrupted production schedules and weighed on order books. "Firms’ struggles to obtain manufacturing inputs was clear in survey data, with supply delivery times lengthening to one of the most severe extents on record," IHS Markit said.

As a result, both input cost and output price inflation rates hit new highs. The input prices index rose to 89.5 from 86.9, the highest since the survey began in 1997, according to Reuters.

Among individual countries, the Netherlands and Ireland hit a two-month high, of 62.5 and 62.1 respectively, while Italy was 61.1, a four-month high.

But France and Germany - the bloc’s largest economy - saw their manufacturing PMIs ease to nine-month lows, of 53.6 and 57.8 and respectively.

Chris Williamson, chief business economist at IHS Markit, said: "Average delivery times for raw materials lengthened at a rate exceeded only twice in almost a quarter of a century of survey data, as companies reported demand once again running ahead of supply for a wide variety of inputs and components.

"Production constraints at suppliers were reported alongside a growing list of logistical issues. These include a lack of shipping containers and inadequate freight capacity, port congestions, driver shortages and broader transport delays linked mainly to the pandemic."

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said: "The headline manufacturing index has now fallen for four months in a row, and despite remaining in expansionary territory, clearly signals slower growth in manufacturing heading into the last quarter of the year.

"This is bad news for a sector in which output has basically moved sideways since the start of the year, despite a surge in demand.

"While it remains strong, we are now seeing that demand is being hit by supply issues too: reduced availability and rising output prices - as firms try to pass on the higher input costs - appear to be leading to waning demand growth."

The Eurozone manufacturing PMI is based on survey data collected from a representative panel of around 3,000 manufacturing firms.