Eurozone manufacturing PMI slips 0.5 points to 52.3

The final Royal Bank of Scotland/NTC Eurozone Manufacturing Purchasing Managers’ Index – a composite indicator designed to provide a single-figure summary of business conditions – registered 52.3 in February. The PMI was in line with the flash reading and down from 52.8 in January, therefore signaling a slight easing in the rate of improvement to the second-weakest over the past 2.5 years. PMI readings among the big-four euro nations showed the widest variation for 7.5 years, with continued solid growth in Germany and, to a lesser extent, France contrasting with near-stagnation in Italy and an accelerating rate of contraction in Spain. The PMI for Italy hit a 2.5-year low while Spain saw the sharpest rate of contraction since December 2001.

Output: Strong growth in France and Germany

Output growth slowed in February, but to a slightly lesser extent than indicated by the earlier flash estimate. Although well down on the strong rate of increase seen prior to last autumn’s slowdown, the survey data indicate that production continued to expand at a moderate pace. However, of the big-four countries, only Germany saw an acceleration in output growth. A modest easing in the growth rate in France meant the two biggest Eurozone economies saw identically strong rates of increase. In contrast, output growth fell slightly in Italy to a modest pace. Production in Spain fell for the first time for five years, and at the steepest rate since December 2001. Production of investment goods continued to record stronger growth than the consumer and intermediate goods industries, despite the rate of increase slipping to a 29-month low.

Orders show modest growth

Growth of new orders was slightly weaker than in January (though above the flash estimate), therefore continuing to run well below the buoyant pace seen last summer. The latest increase was only very modest and the second-weakest recorded over the past 32 months. Of the big-four countries, only Germany saw an increase in the rate of growth, but France nevertheless recorded marginally stronger growth than Germany. In contrast, new orders fell slightly in Italy for the second month running and declined sharply in Spain, registering the steepest monthly fall since December 2001.

Growth of new export orders* also slowed closer toward stagnation in February (though increased by slightly more than indicated by the flash estimate), rising at the weakest pace for 33 months. Both Germany and France saw weak growth of new exports, while stagnation was seen in Italy (the first time since May 2005 that exports failed to grow) and Spain saw new exports orders fall for the fifth time in the past six months, registering the steepest decline since November 2004.

Prices: Input price inflation moves higher

Input price inflation accelerated a little more than estimated by the flash release, picking up for the second successive month to reach a seven-month high. High oil, energy and food prices in particular continued to be widely reported. Rates of input price inflation rose in all big-four countries, especially in Spain and Germany. France continued to report the steepest rate of input price inflation, Spain the weakest.

Output price inflation at 11-month high

The rate of increase in average factory gate (output) prices accelerated a little faster than initially indicated by the flash release, rising to an 11-month high and, therefore, continuing to run well above the survey’s long-run average. All the big-four countries saw an increase in the rate of output price inflation, except Italy where it remained unchanged on January’s 10-month high. French manufacturers again reported the strongest inflation, with the rate hitting a one-year peak, while 11- and five-month peaks were seen in Germany and Spain, respectively. Producers of consumer goods reported the steepest rise in output prices for the sixth consecutive month, although the rate of increase eased from January’s record high.

Employment: Buoyant job creation in Germany

Employment growth was very marginally weaker than estimated by the flash release for February, therefore slipping fractionally on January’s rate of expansion but remaining similar to those seen over the previous six months. Looking at the big-four, Germany recorded the strongest gain, with the rate of job creation only slightly below January’s record 11-year survey high. In contrast, employment fell in both Spain and Italy, with the former reporting the steeper rate of job losses. Employment rose in France for the first time in five months.

Commenting on the Eurozone Manufacturing PMI survey data, produced for The Royal Bank of Scotland by NTC Economics, RBS chief euro area economist Jacques Cailloux said: “The final PMI data for February signaled the resumption of slower activity in the Eurozone manufacturing sector due to the combined headwinds of slower economic growth in export markets, the strong euro and high commodity prices. The rate of expansion is consistent with an easing in growth of manufacturing production from a peak of 6.1 percent per annum last year to below 1 percent in February, as these pressures on growth begin to take hold. Most worrying is the dismal performance of Spain and the further signs of weakness in Italy. While the forward-looking indicators from the survey suggest that growth will continue to weaken in coming months, the stubbornly high rate of output price inflation will meanwhile concern the ECB and limit its room for maneuver.”

* The Eurozone New Export Orders Index includes intra-Eurozone trade.