Eurozone PMI rises, signals continued modest growth

Stronger growth in France and Germany contrasts with continued weakness in Italy and Spain

The final Royal Bank of Scotland/NTC Eurozone manufacturing Purchasing Managers’ Index registered 52.8 in January, up very slightly on the earlier flash reading of 52.6 and above the level of 52.6 recorded in December. The latest PMI signals an improvement in the overall health of the manufacturing economy for the 31st successive month, with the rate of expansion up very marginally on December but remaining well below the pace seen prior to last autumn’s slowdown. PMI readings among the big-four euro nations showed the widest variation for a year, with accelerating and robust growth in Germany and France contrasting with near stagnation in Italy and contraction for the second month running in Spain.

Faster output growth led by France; near stagnation in Spain

Output growth accelerated, with growth marginally stronger than estimated by the flash index. Although well down on the pace seen in the summer, the rate of growth was only fractionally below the long-run average of the survey. Production of investment goods showed particularly strong growth. All big-four countries saw output growth pick up on December. France recorded the strongest rate of increase, seeing the fastest expansion for 14 months. Only slightly weaker growth was recorded in Germany, where the rise was the steepest for four months. However, output growth remained weak in Italy and production barely rose in Spain for the second month running.

Orders growth led by France, with Italy and Spain seeing almost no increase

Growth of new orders was unchanged on December (rather than slowing slightly, as indicated by the flash estimate), with the rate of increase remaining only very modest and well below the buoyant pace seen last summer. Of the big-four countries, France registered the strongest rate of growth, followed by Germany. Spain meanwhile saw new orders growth remaining close to stand-still for the second successive month, while Italy saw new orders fall (albeit only marginally) for the first time since May 2005.

Growth of new export orders slowed fractionally to show the second weakest monthly gain in more than 2.5 years (the final index came in a little higher than the flash reading). Of the big-four countries, Spain saw new export orders decline for the fourth time in the past five months. Italy saw the strongest growth for the second month running, followed by Germany and then France.

Stocks of finished goods show largest rise since 9/11

Stocks of finished goods increased for the third time in the past four months, buoyed by rising inventories of consumer goods. Although only very slight, the latest increase was the largest since the U.S. terrorist attacks of 9/11.

Input price inflation surges higher

Input price inflation accelerated markedly in January (and by more so than indicated by the flash release), hitting a six-month high and rising above the average recorded last year. In particular, manufacturers reported high oil and energy prices. Rates of input price inflation rose in all big-four countries, especially in Italy, where the pace hit an 18-month high.

Output price inflation jumps to 10-month high

Output prices rose at the fastest rate for 10 months in January, climbing above last year’s average and running substantially above the survey’s long-run average. Prices charged for consumer goods showed the steepest rise in the series’ five-year history. Rates of increase accelerated in all big-four countries, led by France, where the pace hit an 11-month peak.

Modest jobs growth continued, driven by Germany

Employment continued to rise, with the rate of growth largely unchanged on the modest pace seen in recent months. Strong growth in Germany (where the rate of job creation hit a record high in the survey’s 11-year history) contrasted with stagnation in Italy and declines in France and Spain.

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 January show that, overall, the Eurozone manufacturing sector continued to expand at a slow but reasonable pace. However, the wide national variations suggest that not all is well. Spanish and Italian manufacturers are clearly struggling in the headwinds of weaker global growth, the strong euro, high oil prices and eroding demand in domestic markets. Against this, French and German manufacturers continue to do well, at least for the time being, but German producers have failed to fully make up the pace lost last autumn. The prices data are of more concern than suggested by the earlier flash estimate, with manufacturers’ selling prices of consumer goods in particular rising at a record pace.”