Eurozone factory orders see near-record decline

Eurozone manufacturing saw another sharp decline in October, with the HCOB eurozone manufacturing purchasing managers’ index (PMI) seeing one of the sharpest drops on record.

The index stood at 43.1 for the month, down from September’s 43.4 and reaching a three-month low, while the output index remained unchanged at 43.1.

HCOB said the contraction in new orders during October was one of the most severe ever recorded, contributing to a substantial fall in factory production.

Indicators for new orders, purchasing activity and backlogs reached historically low levels, while the survey indicated the fastest reduction in factory employment levels since August 2020, coinciding with a drop in business confidence to an 11-month low.

Manufacturers’ input prices continued to fall for the eighth consecutive month, leading to further price discounts in factory production.

Although deflation rates eased in both input costs and output prices, the trend persisted.

Among the countries surveyed, Germany was the worst performer, despite a slight improvement in its downturn.

France experienced its most substantial deterioration in factory conditions in nearly three-and-a-half years, while faster declines were seen in Italy, Spain, and Ireland.

Greece was the sole country to register a marginal improvement.

The survey data also indicated a notable weakness in demand, with new orders contracting at rates surpassed only by those during the pandemic, the global financial crisis of 2008-2009, and the energy crisis of late last year.

Similar trends were seen in the quantity of purchases and backlogs of work.

Companies responded to the weak demand by rapidly reducing pending workloads, even though factory production volumes fell significantly again.

That, HCOB said, marked the joint second-strongest pace of decline since May 2020.

Throughout the year, eurozone manufacturers had continued to reduce their stocks of purchases, with the rate of depletion accelerating for the second consecutive month, reaching its highest level since November 2012.

Postproduction inventories also fell, with October seeing the most significant decline in over two years.

In addition to inventory reduction, companies sought cost savings through job cuts, resulting in employment falling for the fifth consecutive month at the start of the fourth quarter.

The rate of job shedding was the fastest since August 2020.

Despite remaining marginally optimistic about the 12-month outlook, firms’ growth expectations deteriorated, reaching an 11-month low.

Deflation remained a key feature of the manufacturing PMI, with both input costs and output prices continuing to fall.

While the extent of operating expense reduction was the weakest since April, it was still significant.

That downward pressure on prices was partially attributed to supply-side improvements, as average input lead times improved.

HCOB said survey respondents continued to pass cost savings to clients through reduced prices, marking the sixth consecutive month of such actions.

“The eurozone manufacturing sector’s trend over the last two years or so looks like a bumpy sleigh ride down into the valley,” said Hamburg Commercial Bank chief economist Dr Cyrus de la Rubia.

“Given that the headline PMI did barely move over the last few months, including October, we may be about to reach the bottom of the valley.

“Thus, the big question is when we will begin to make an ascent.”

Dr de la Rubia said the stagnating new orders index, which remained deep in negative territory, and the similar behaviour of the quantity of purchase index did not suggest an immediate turnaround.

“Having said this, history tells us that in many cases, the levelling out of these indices is the precondition for a start of the recovery.

“We expect this to happen in the first half of next year.”

Reporting by Josh White for Sharecast.com.