Eurozone Manufacturing Sector Shrinks Most In More Than 3 Years

The downturn in the euro area manufacturing sector intensified in June with the sharp reductions in production and orders, reflecting the impact of monetary policy tightening in the private sector.

The final HCOB manufacturing Purchasing Managers’ Index, or PMI, declined to 43.4 in June from 44.8 in May, survey data from S&P Global showed Monday. The score was also below the initial estimate of 43.6. A reading below 50 suggests contraction in the sector.

The sector shrank for the twelfth straight month. The headline figure showed the biggest contraction in manufacturing activity since May 2020.

Production decreased for the third successive month in June. Output dropped for the third straight month and at the strongest pace since October last year.

A marked weakness in demand conditions was blamed for the fall in production. Order intakes declined sharply, and at the strongest rate in eight months. Demand from foreign clients also decreased.

Factories reduced their staffing levels for the first time since January 2021. Due to stronger declines in new orders and output, firms’ confidence weakened notably. Although confidence remained negative, it was the most subdued in seven months.

Manufacturers increased their destocking in June. Input purchasing decreased at the fastest pace in 26 months in June.

Input prices paid by manufacturers declined at the fastest pace since July 2009. With easing cost burdens and competitive environment, prices charged for goods declined at the strongest pace in three years.

All four of the biggest euro area economies contracted in June.

The downturn in German manufacturing sector deepened to the worst in more than three years in June. There were deeper cuts in production in response to a sustained weakening of demand.

The HCOB final factory PMI for Germany posted 40.6 in June, down from May’s 43.2. The flash reading was 41.0.

France’s manufacturing activity was also stuck in the contraction zone. However, the HCOB manufacturing PMI ticked higher to 46.0 in June from 45.7 in May and the score was also above the initial estimate of 45.5.

Italy’s manufacturing economy also posted steepest deterioration in operating conditions since April 2020. The manufacturing PMI fell from 45.9 in May to 43.8 in June.

Spain’s manufacturing sector contracted for the third straight month in June. The factory PMI came in at 48.0 in June, down from 48.4 in the previous month.

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