Eurozone: manufacturing sector ends the year in near-stagnation and worries for 2019

The year 2018, which began with a bang, ends with a virtual stagnation for the European manufacturing industry reveals the PMI index released Wednesday by the IHS Markit Institute with the final results of monthly surveys of directors of purchases for the euro area, country by country. In this context, business optimism has fallen to its lowest level in six years.

Considering the eurozone in a global manner, the manufacturing sector ended 2018 on a note of weakness and nothing suggests a recovery at the start of 2019, reveals IHS Markit. The economic information society has published this Wednesday the final results of monthly surveys of purchasing managers that are used to develop country by country index PMI, a business indicator obtained by monitoring the evolution of variables such as sales, employment, stocks and prices.

Thus, for the euro area, the manufacturing PMI fell in December for the fifth consecutive month, to 51.4 against 51.8 in November, a figure consistent with the estimate “flash” published on December 14 and just about higher than 50 which marks the boundary between growth and contraction.

This is a new low since February 2016, but the production sub-index, which is included in the composite PMI, which itself is considered a reliable barometer of economic activity, has risen 51.0 against 50.7.

“A disappointing December is closing a year that has seen manufacturing move from a boom to near-stagnation,” said Chris Williamson, IHS economist Markit. “Weakness in the survey data also raises the possibility that the production sector is pulling down the economy in the fourth quarter, in contrast with the impetus given a year earlier.”

Investigations show that Italy remained in a contraction zone where it was joined by France. In Germany as in Spain, the growth of the manufacturing sector slowed down. Lacking hope for the month of January, new orders fell in December at an unprecedented rate for four years, backlogs fell for the fourth month in a row and hiring was modest.

In this context, business optimism has fallen to its lowest level in six years. The sub-index of future production fell to 56.0 from 56.3.

“Persistent worries about global trade, continued political uncertainty and tighter financing conditions have combined to undermine confidence in December,” said Chris Williamson.

Find below, the main final results by country, IHS Markit surveys of purchasing managers in the manufacturing sector in Europe for the month of December.

GERMANY: Eleventh month of decline in the manufacturing sector
Manufacturing activity growth in Germany slowed in December as new orders fell the most in four years, according to the final results of IHS Markit’s survey of purchasing managers published Wednesday.

The manufacturing PMI, which accounts for about a fifth of the German economy, fell to a low of 33 months, to 51.5 last month from 51.8 in November, approaching the threshold of 50 which separates a contraction from a growth of activity.

Economists polled by Reuters expected a figure of 51.5 in December.

This is the eleventh time in 2018 that the German manufacturing PMI fell, reflecting the slowdown in growth of the largest economy in the euro area, whose gross domestic product (GDP) contracted in the third quarter.

The German economy is suffering from the impact of the new anti-pollution standards on the automotive industry, trade tensions between Washington and Beijing and the weakening of demand in the euro zone.

“While we had a little overheating at the end of 2017, a correction was inevitable, but the magnitude of the slowdown surprised somewhat,” said Phil Smith, economist at IHS Markit.

FRANCE: contraction of the manufacturing sector in December
Activity in the manufacturing sector contracted in France in December for the first time since September 2016, dragged into negative territory by the sharp drop in production in a context disrupted by the repercussions of the movement of “yellow vests”, according to the definitive version of the IHS Markit survey published on Wednesday.

UNITED KINGDOM: The rise of the PMI, a trompe-l’oeil
British industrial activity saw its strongest growth in six months in December, boosted by stockpiling to prevent possible delays to less than three months from the exit of the United Kingdom from the European Union, shows the monthly survey of purchasing managers.

The IPS Markit / CIPS PMI rose to 54.2 from 53.6 in November (revised from 53.1), well above the Reuters consensus of 52.5.

The rise in the index is due to the storage of components and finished products by manufacturers and does not augur an improvement in the outlook for the UK economy, says Rob Dobson, director of studies at IHS Markit.

“Any positive effect on the PMI is likely to be short-lived as these gains will be reversed later in the year when these security stocks are eroded or become obsolete,” he says.

And to add:

“Fears of supply chain disruption and exchange rate uncertainties also weigh on business confidence.”

The UK Parliament has yet to take a final decision on Prime Minister Theresa May’s draft Brexit deal with Brussels as the London exit from the EU is scheduled for 29 March.

After two months of contraction, export orders saw their strongest growth in December since May, again reflecting stock increases to prevent the effects of Brexit.

Purchase prices have fallen to their lowest level in two and a half years.

ITALY: third consecutive month of contraction for industry
The Italian manufacturing sector experienced a third consecutive month of contraction in December, albeit at a slower pace than the previous month, according to IHS Markit’s survey of purchasing managers.

The PMI index rose to 49.2 against 48.6, while remaining below the 50 mark that separates growth and contraction. Nine economists polled by Reuters expected on average an index at 48.5.

The new orders sub-index stood at 47.8 vs. 46.6 in November, remaining below the 50 mark for the fifth month in a row.

SPAIN: the manufacturing PMI at its lowest since August 2016
The Spanish manufacturing sector recorded its weakest growth since December 2016, due to a moderation in production and new orders, but business confidence continued to improve, according to the IHS Markit survey. purchasing managers.

The manufacturing PMI fell to 51.1 last month from 52.6 in November and 52.4 expected on average by economists polled by Reuters. However, it remains above the threshold of 50, a limit that it has not crossed over the past five years.

The production component came out at 51.5, also at its lowest since August 2016, up from 53.6 in November.

“The manufacturing sector ended 2018 on an attenuated note (…), in contrast to the strong growth rates observed at the beginning of the year,” says Paul Smith, director of IHS Markit studies.

He adds :

“The erosion of growth will have characterized the performance of the sector in 2018. This is due to a natural correction from the end-2017 expansion levels that could not be maintained over time, but the downtrend was exacerbated by the rise in economic and political instability, particularly in relation to tariffs. “

NETHERLANDS: the only European country to succeed?
AMSTERDAM – The Dutch manufacturing sector recorded its strongest growth in three months in December, with an acceleration of production, orders and hires, shows the survey of purchasing managers.

The Nevi / IHS Purchasing Managers Index (PMI) rebounded to 57.2 from 56.1 in November. This last figure marked a low for two years and followed two months of slowdown.

“The manufacturing sector finished a good year 2018 on a higher,” says IHS Markit. “In trend, 2018 reached a new record at 59.7, exceeding the previous peak of 2017.”

Dutch manufacturers remain very optimistic about their outlook for 2019 even though their expectations fell in December to their lowest level since September 2016, adds IHS Markit.

IRELAND: The growth champion in 2018 ends the year in slow motion
Irish manufacturing activity decelerated at the end of the year with slower growth in output, new orders and hires, according to IHS Markit’s monthly survey of purchasing managers.

The PMI fell to 54.5, its lowest level in nine months, against 55.4 in November. The sub-index that measures new orders fell to 55.1 from 57.3.

Ireland recorded the strongest growth in the European Union in 2018 for the fifth year in a row but remains under threat of a disorderly exit from the UK’s EU.

“Some firms have seen signs of a slowdown in demand but participants (in the survey) are anticipating a recovery in the new year,” commented Amritpal Virdee, an economist at IHS Markit.

The Irish manufacturing PMI has not been in a contraction zone since May 2013.

GREECE: a slowdown but growth remains solid
In December, Greek industrial activity saw solid growth thanks to strong production and export orders, according to the IHS Markit survey of purchasing managers.

The manufacturing PMI, which accounts for about 10% of the Greek economy, fell to 53.8 last month from 54.0 in November, while still posting one of the best performances of the last 11 years and remaining well above the threshold of 50 from which it reports growth.

“Industrials continued to show resilience in December with output growth remaining strong and well above the trend of the survey,” notes Sian Jones, an economist at IHS Markit.

Export orders posted their strongest growth in three months and hirings remained numerous even though the employment sub-index fell to its lowest level in six months.

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