Eurozone manufacturing improves, but gloom persists

There’s a dash of good news for Europe’s manufacturing sector, as a closely-watched survey tracking sentiment improved for the first time this year, edging up from the year low it hit in February.

The manufacturing purchasing managers’ index (PMI) compiled by data group Markit rose to 51.6, up from an initial reading of 51.4 and February’s reading of 51.2. Readings above 50 indicate expansion.

However, that is still only a whisker above the year-low it hit last month, and behind the headline figure there are some alarming details.

Output prices fell at the fastest pace in more than seven years, while the decline in selling prices was the steepest in more than six years, underscoring the challenges the region faces in stoking inflation. France and Germany suffered particularly intense deflationary pressures, and every country except Austria saw selling prices drop.

Manufacturing employment increased for the nineteenth consecutive month, but the increase in March was the weakest seen during that period.

Germany’s manufacturing PMI improved for the first time this year. The reading was revised up to 50.7 from an initial reading of 50.4, and last month’s reading of 50.5

Italy and Spain’s PMIs rose to three-month highs of 53.5 and 53.4 respectively.

However, France slipped back into contraction for the first time in seven months, slipping to a reading of 49.6.

“Eurozone manufacturers are clearly still finding life difficult,” said Howard Archer at IHS, and added:

The Eurozone manufacturing sector is clearly suffering as export orders are limited by muted global growth. On top of this it appears that recent weaker Eurozone business and consumer confidence is limiting demand for capital goods and for consumer durable goods.

Chris Williamson, chief economist at Markit said:

Policymakers will also be worried by the further intensification of deflationary pressures in manufacturing supply chains, with prices charged at the factory gate falling at the steepest rate since late-2009. Discounting was widespread as firms competed on price amid weak demand

First chart courtesy of Bloomberg software, second and third charts courtesy of Markit