Euro area’s manufacturing output falls further in December

Euro area’s manufacturing PMI momentum eased in December after reaching a three-month high in November. The IHS Markit Eurozone Manufacturing PMI index dropped to 46.3 from November’s 46.9. The PMI index remains below the crucial 50.0 no-change mark for the 11th consecutive month. Underlining the continued underlying softness in sector performance, the PMI averaged 46.4 in the fourth quarter. Market groups data indicated that manufacturing underperformance was centred on the intermediate and investment goods sectors, with the respective PMIs remaining well inside negative territory. On the contrary, marginal growth was recorded in the consumer goods category for the first time since August.

There was a widespread weakening of PMI figures in December, with seven of the eight nations covered by the survey seeing weaker PMI figures compared to November. Germany was the weakest performing nation again, while the deteriorations recording in Italy and the Netherlands were the sharpest in more than six-and-a-half years. Conversely, growth was sustained to a strong degree in Greece, whilst a marginal gain was seen in France.

Both production and new orders continued to fall markedly in December. Latest data indicated output falling for an 11th straight month and at a rate that matched September’s 81-month record. Levels of incoming new work also dropped at a sharper rate. This was in spite of the softest reduction in new export sales since the beginning of the year.

New work continued to fall and manufacturers were again able to make marked inroads into their existing contracts. Backlogs of work fell for the 16th straight month and at a more rapid rate compared to November. Spare capacity subsequently weighed on employment, which fell in December for the eighth successive month. Furthermore, the pace of job losses was the sharpest seen by the survey since the beginning of 2013. Job shedding remained centred on Germany. On the contrary, Greece recorded solid growth in employment, with France the only nation not to record lower employment in the month.

The volume of inputs purchased by manufacturers dropped in December for a 13th successive month, whilst inventories of both inputs and finished goods continued to decline. With demand for inputs falling, supplier delivery times again rebounded to a historically marked degree at the end of 2019. Vendor performance has now bolstered for 10 months in succession.

Input prices fell further. Although the softest since September, deflation remained marked and provided further room for manufacturers to lower their own charges. Latest data indicated output prices falling again in December, as they have done in each month since July.

Sentiment regarding the future continued to rebound steadily at the end of 2019. Having hit its lowest in more than six-and-a-half years in August, expectations about output bolstered to a six-month high in December. Sentiment rebounded throughout the region except for France and Greece.