Eurozone Manufacturing Downturn Shows Signs of Easing

The prolonged downturn in eurozone manufacturing activity may be nearing its end, according to a recent survey revealing a slower pace of decline in new orders compared to the past two years. This positive development has led to improved business confidence within the sector.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, edged up to 47.3 in May from 45.7 in April. While still below the 50 mark indicating growth, this marks the slowest contraction rate in 23 months and comes close to the preliminary estimate of 47.4.

The index measuring output, a key component of the composite PMI expected on Wednesday, jumped to a 14-month high of 49.3, though slightly below the flash estimate of 49.6. This suggests that the manufacturing sector might be on the cusp of reversing the downward trend that has persisted for over a year.

The improvement in sentiment is partly attributed to the new orders index, a measure of demand, which rebounded to a two-year high of 47.3 from 44.1. Additionally, falling production costs have allowed factories to reduce prices, potentially giving the European Central Bank (ECB) room to maneuver on interest rates.

With inflation easing and the manufacturing sector showing signs of stabilization, the ECB is widely expected to cut interest rates on Thursday. This move could further support the manufacturing sector’s recovery and contribute to overall economic growth in the eurozone.

Overall, the latest PMI data suggests that the eurozone manufacturing sector is gradually emerging from its protracted downturn. While challenges remain, the improved business confidence and slowing decline in new orders offer a glimmer of hope for the industry’s future.