Eurozone manufacturing continues sharp contraction

Eurozone manufacturing continued to shrink sharply in May as Covid-19 restrictions caused factory job losses to mount, a survey showed.

The downturn eased from April's record low but all parts of the manufacturing sector recorded significant deterioration in operating conditions, according to the final reading of the IHS Markit purchasing managers' index.

The PMI for May was 39.4, up from 33.4 in April when the index plunged to a record low. A score of below 50 indicates contraction while a score of more than 50 shows growth.

All countries registered severe reductions in manufacturing employment led by France, Spain and Germany. The cuts extended the period of job losses to 13 successive months.

There was a general improvement in PMI readings across the single-currency zone though all countries suffered deteriorations. Germany, the eurozone's biggest economy, had the biggest drop with a score of 36.6 while Italy, the first European country to be hit by the pandemic, had the best score of 45.4.

Input and output costs fell as the price of oil-related products dropped and manufacturers responded to increased competition to sell goods. The rate of discounting on goods was unchanged from April when the rate hit a 10-year record.

There was some hopeful news as confidence about the year ahead improved to a three-month high as lockdown restrictions continued to be lifted.

Chris Williamson, chief business economist at IHS Markit, said: "The manufacturing downturn looks to have bottomed out in April. The improvement in part merely reflects the comparison against a shockingly steep fall in April, but more encouragingly was also linked to companies restarting work as virus lockdowns were eased.

"Whether growth can achieve any serious momentum remains highly uncertain, however, as demand – both domestically and in export markets – looks set to remain subdued by social distancing measures, high unemployment and falling corporate profits for some time to come."