He eurozone manufacturing sector shows in may «signs of difficulties» due to rising prices and supply disruptions resulting from the war in the Middle East. Consequently, the PMI index indicates a partial decline. Specifically, the PMI index The euro zone manufacturing sector fell from a nearly four-year high in April (52.2) to 51.6 in May. However, this last figure was among the highest recorded since mid-2022. «A key event in May was the new rise in energy and raw material priceswhich caused the largest monthly increase in company costs in four years. Meanwhile, the incidence of supply chain delays has reached its highest level since pandemic-induced supply shortages in 2022, putting further upward pressure on prices. Factories are forced to pass on increased costs to customers, which will inevitably boost inflation in the coming months. However, demand is being affected by the increase in prices and, in May, a stagnation in the order book after three consecutive months of improvement,» they comment in S&P Global Market Intelligence. As they explain, part of the relative strength of the PMI index was derived from the component of supplier delivery times. Since the corresponding index indicated the biggest delays since June 2022its contribution to the manufacturing PMI index was positive (historically, longer lead times are associated with greater manufacturing activity). The other four sub-indices of the PMI index imparted negative directional influences in May. In particular, the volume of new orders received stagnatedmarking a rapid change in demand conditions after sales growth hit a four-year high in April. This stagnation was partly due to a further decline in new export orders. However, output growth continued, although growth was the slowest since January. Purchases of raw materials and intermediate goods increased for the third consecutive month, although the pace of increase was barely marginal and slower than in April. Due to worsening delivery delays, purchasing stocks decreased in May. Eurozone manufacturers were able to catch up on their outstanding orders in May, marking the first monthly decrease in workloads since February. This reduction occurred despite the acceleration of staffing loss. Manufacturing employment declined in May, extending the current period of uninterrupted contraction to exactly three years. Regarding Eurozone manufacturers’ production expectations for the next twelve months, May survey data indicated a moderate level of optimism. Finally, Eurozone factories faced increased cost pressures in May. The rise in input prices was the fastest in four years. Consequently, Prices charged rose at the fastest rate in three and a half years. «Monetary policymakers will be eager to curb rising inflation, but they will also be cautious about the extent of interest rate hikesgiven signs of weakened demand that is already emerging,» they say.
