Conditions in the Eurozone manufacturing sector have seen a more intense downturn in June, as production contracts for the third month in a row, according to the latest HCOB PMI survey.
The HCOB Eurozone Manufacturing PMI fell to 43.4 in June, down from May’s 44.8 as factory output declines at the sharpest rate since October 2022, dragged down by concerns regarding the price and supply of energy. The latest figure marks the sharpest deterioration in the health of the euro area goods-producing sector since May 2020.
Demand for eurozone goods also fell sharply at the end of 2023’s second quarter, with weak sales performances, particularly evident in Australia, Germany, and Italy.
Employment activity also dropped for the first time since January 2021 and business confidence dipped to a seven-month low.
Factories in the euro area accelerated their destocking efforts in June amid continued weakness in the manufacturing economy, the survey found.
Input purchasing fell at a substantial pace that was among the fastest in 26 years of data collection. The volume of pre-production items stocked in warehouses declined for the fifth month in a row, while firms registered the quickest drop in inventories of finished goods since April 2022.
“There is growing evidence that the capital-intensive industrial sector is reacting negatively to the ECB’s interest rate hikes. Companies surveyed reduced their headcounts for the first time since January 2021, and purchasing activity declined at one of the worst rates on record. Cuts to sales prices for the second month in a row come as no surprise given the weakness in demand and rapid rate of cost deflation,” said Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
The sharp decrease in average input costs has been attributed to falling input demand and vastly improved supply conditions.
Meanwhile, the price of goods leaving the factory gate fell again, at the quickest pace in three years.
Several countries in the eurozone also recorded the sharpest declines in business conditions over the last three years. These include Austria, Germany, Italy, Ireland and the Netherlands.
Output levels slipped for a third-consecutive month, this time with a sharper drop to the strongest since October 2022.
“The downturn is visible across the board geographically as all four of the biggest eurozone countries remained in contraction in June. In terms of new orders, the weakness in demand is most pronounced in Germany, followed by Italy and France,” de la Rubia said.
