FX.co ★ Eurozone Manufacturing Downturn Continues

The manufacturing downturn in the euro area persisted through October, although signs of stabilization emerged as the contraction slowed to its most moderate rate in five months, according to survey data released by S&P Global on Monday.

The HCOB Manufacturing Purchasing Managers' Index, a crucial indicator of sector health, rose to 46.0 in October, an increase from September's 45.0, with the preliminary estimate standing at 45.9. This suggests a deceleration in the downturn, representing the slowest contraction experienced since May. Despite this relative slowing, the sector remains in decline for the 28th consecutive month, setting a new record for the longest downturn in the survey’s history since its inception in 1997.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted a glimmer of positivity, stating, "The manufacturing sector recession did not worsen in October.” According to the GDP nowcast, which incorporates various indicators along with the PMI, industry output could see a slight reduction of 0.1 percent in the fourth quarter, de la Rubia added.

The survey detailed that while factory output continued to decrease, the pace of reduction was more tempered than in September, primarily due to enduring weaknesses in new order volumes. Manufacturers carried on with reducing purchasing activity, a trend persistent since July 2022, leading to a notable contraction in pre-production inventories amid ongoing reductions in input buying.

Employment trends remained negative, with further workforce reductions in October. The rate of job losses closely mirrored the 49-month peak recorded in September. Meanwhile, manufacturers' growth expectations reached their lowest point in a year.

Manufacturers experienced a decline in input costs in October, with prices falling at the quickest pace since March. Consequently, factories lowered their output prices to the greatest extent observed in six months.

Moreover, confidence among manufacturers dropped to its lowest in a year during October. The overall eurozone manufacturing landscape was primarily impacted by significant declines in Germany and France.

Germany’s manufacturing sector stayed deeply entrenched in contraction, with the headline HCOB PMI rising to 43.0 from a 12-month low of 40.6 in September, also surpassing the preliminary figure of 42.6 and marking the highest reading since July. Conversely, France's manufacturing activity persisted in decline, revealed by continued drops in new orders and production. The HCOB final factory PMI registered 44.5, consistent with earlier estimates and slightly down from 44.6 in September.

In Italy, the manufacturing downturn intensified as the HCOB factory PMI fell to 46.9 from September's 48.3, indicating a reduction in new orders and output alongside a marked decline in international demand. Conversely, Spain's manufacturing sector saw notable expansion, propelled by robust increases in output and new orders due to improved market conditions, with the index climbing to 54.5 from 53.0 in September, marking the strongest growth in over two-and-a-half years.