Euro Zone Factory Recovery Faltered In Jan But Still Strong - PMI

LONDON: Euro zone manufacturing growth remained resilient at the start of the year but the pace waned from December as renewed lockdown measures across the continent, alongside supply shortages, hurt activity, a survey showed.

With coronavirus infections soaring again in Europe countries have forced vast swathes of the bloc’s dominant service industry to shut their doors, leaving manufacturing to support the economy as factories have largely remained open.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) fell to 54.8 in January from December’s 55.2, although that was a touch above the initial 54.7 “flash” estimate.

“Euro zone manufacturing output continued to expand at a solid pace at the start of 2021, though growth has weakened to the lowest since the recovery began as new lockdown measures and supply shortages pose further challenges to producers across the region,” said Chris Williamson, chief business economist at IHS Markit.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good gauge of economic health fell to 54.6 from 56.3, still comfortably above the 50 mark separating growth from contraction.

But with much of the service industry likely to remain closed for some time the bloc’s economic outlook remains bleak and it will take up to two years for GDP to reach pre-COVID-19 levels, a Reuters poll found last month. [ECILT/EU]

Restrictions meant a sub index measuring delivery times sank to 31.6 from 34.4, suggesting factories were struggling to obtain the raw materials they need. The index has only been lower once since the survey began in mid-1997 and that was at the height of the pandemic last year.

“Supply shortages have meanwhile put pricing power in the hands of suppliers, pushing raw material prices sharply higher. Increased shipping costs are adding to the burden,” Williamson said.

Despite rocketing input costs factories increased their own prices at a shallower rate than in December.

Still, with hopes the vaccines being rolled out will allow some return to normality, optimism about the year ahead climbed to a three-year high.

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