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Eurozone Manufacturing Sector Contracts Most Since Mid-2020

eurozonepmi 042117 03oct22 lt

The euro area manufacturing sector contracted at the fastest pace since mid-2020 due to further slides in output and new orders, final data from S&P Global showed on Monday.

The final manufacturing Purchasing Managers' Index fell to 48.4 in September from 49.6 in the previous month. The score was slightly below the flash estimate of 48.5. The index slumped to its lowest level since June 2020.

"The ugly combination of a manufacturing sector in recession and rising inflationary pressures will add further to concerns about the outlook for the eurozone economy," Chris Williamson, chief business economist at S&P Global Market Intelligence said.

Manufacturing output fell across the euro area primarily due to fading demand. In some cases, production volumes were reduced in response to high energy prices.

New orders declined at the sharpest pace since May 2020 and reflected a broad weakening of client appetite. Employment growth continued in September but slipped to its weakest since February 2021.

In a further sign of distress, Eurozone manufacturers reduced their purchases of inputs for a third month. Indeed, pre-production inventories rose once again in September despite the sustained drop in buying activity.

The survey showed that rates of input cost and output price inflation accelerated in September. Soaring energy prices were a key factor behind the intensification of cost pressures. In turn, factories passed on higher expenses to their clients through stronger increases in selling charges.

Business confidence slipped back into negative territory in September. Manufacturers were at their most pessimistic since May 2020.

The survey showed that Ireland was the only monitored euro area country to record a manufacturing PMI in expansion territory.

France and Germany both recorded the worst deteriorations in manufacturing sector conditions, with their respective PMIs at the lowest levels since the first wave of the COVID-19 pandemic in the first half of 2020.

France's manufacturing activity shrank the most since May 2020 as high prices lowered demand. The manufacturing PMI slid to 47.7 from 50.6 in the previous month. The flash score was 47.8.

The downturn in Germany's manufacturing sector deepened in September with the easing of new orders and soaring energy prices. The S&P Global/BME factory PMI came in at 47.8 compared to 49.1 in the prior month. The reading was also below the flash 48.3.

Spain's manufacturing sector contracted further in September with output and new orders both declining against a backdrop of faltering demand and high inflation. The factory PMI fell to 49.0 from 49.9 in August. This was the third consecutive contraction in activity. The reading was also below economists' forecast of 49.2.

Italy's manufacturing sector logged its biggest decline in output since the height of pandemic lockdowns in 2020 due to a sustained downturn in order book volumes. The factory PMI came in at 48.3 versus 48.0 in the previous month.

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