The Eurozone’s manufacturing sector continues to struggle, with the PMI Manufacturing Index remaining at 45.8 in August, unchanged from July.
This marks the third consecutive month of substantial decline, indicating a prolonged downturn.
Despite falling new orders both domestically and internationally, goods prices have risen for the first time since April 2023, complicating the European Central Bank’s (ECB) efforts to manage inflation.
Mixed performance across Eurozone nations
Data from individual countries reveal varied performance within the Eurozone in August. Greece recorded the highest PMI at 52.9, although this is an eight-month low.
Spain and Ireland remained just above the neutral 50.0 mark, with PMIs of 50.5 and 50.4, respectively, reflecting weakened momentum.
Italy saw some improvement, with its PMI rising to 49.4, the highest in five months, though still in contraction territory.
France reported a PMI of 43.9, the lowest in seven months, while Germany, the Eurozone’s largest economy, recorded a PMI of 42.4, a five-month low.
Rising input and output prices
For the first time since April 2023, Eurozone manufacturing sector selling prices have increased, driven by countries like France, the Netherlands, Greece, and Italy.
This rise in selling prices poses challenges for the ECB, which has relied on falling manufacturing prices to counterbalance inflation in the services sector.
Input prices have also risen since June, ending a deflationary phase. The combination of rising input and selling prices points to increased inflationary pressures, potentially influencing the ECB’s policy decisions.
Challenges for the ECB persist
The ECB faces ongoing inflationary pressures, exacerbated by recent trends in the manufacturing sector.
The central bank has relied on declines in manufacturing prices to offset inflation in services, but rising goods prices now complicate this strategy.
Despite multiple interest rate hikes, the mixed performance in the manufacturing sector and rising prices suggest that further measures may be necessary.
Divergent data across countries adds complexity, with some nations stabilising while others remain in deep contraction.
The Eurozone manufacturing sector has been in recession for 26 months, and recent data offers little hope for a swift recovery.
The persistent decline in new orders and rising input costs suggest that the ECB may need to reconsider its approach to support the broader Eurozone economy.
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