MNI: Eurozone Manufacturing PMI Marginally Higher in July

-CIPS/IHS Markit EZ Mfg PMI 55.1 in July Vs 54.9 June

By Jamie Satchi

     LONDON (MNI) - Euro area manufacturing activity growth saw a minor recovery

in July following June's 18-month low, but nonetheless extended a recent run of

subdued performances to commence the third quarter on a soft note, data released

on Wednesday by IHS Markit showed.

     The final July Eurozone Manufacturing Purchasing Managers' Index (PMI)

reading was unchanged from its flash estimate of 55.1, up marginally from 54.9

in June.

     July's rise was the first recorded since last December's record high of

60.6, the strongest reading since the survey began in mid-1997. Despite

stabilising at a respectable level at the start of Q3, the latest reading

suggests that the sector is finding it slightly difficult to regain momentum

after a stellar end to 2017.

     --BROAD BASED IMPROVEMENT

     Business conditions improved across the consumer, intermediate and

investment goods sectors, with mild growth upticks signalled in the latter two.

Similar to the trend at the all-manufacturing level, rates of expansion were

weaker than at the turn of the year in all three sub-industries.

     --(MILD) RISE IN OUTPUT

     Overall manufacturing output rose in July but this is caveated by the fact

that it was the second-weakest rate of expansion since November 2016. Behind the

tepid growth in production in recent months has been an ongoing weakness in

order book growth -- new orders rose at a pace that was unchanged from June's

22-month low.

     Weaker inflows of new export orders, in particular, played a big part in

order book growth moderation in July, against a backdrop of heightened

uncertainty over tariffs and potential trade wars.

     July saw new export business increase at the weakest pace since August 2016

-- growth rates in Italy, the Netherlands, Greece and Ireland all eased, while

France and Austria saw an outright decline in external orders. Germany and Spain

did notch improvements in July, but these were much weaker than those registered

at the start of the year.

     --INPUT PPI REMAINS HIGH

     Inflationary pressures remained elevated in July, as the cost of input

components and prices charged both rose at above survey-average rates.

     That said, purchase price inflation did come in weaker relative to June,

while the increase in output charges was the least marked since September 2017.

     According to the survey, there was anecdotal evidence of "tariffs, trade

wars, supply-chain delays and raw material shortages" all contributing to the

rise in input costs.

     --WORST YET TO COME?

     "The past two months have seen the most subdued spell of factory output

growth since late-2016... Even this reduced rate of output growth continued to

outpace order book growth, resulting in the smallest rise in order book backlogs

for two years," Chris Williamson, Chief Business Economist at IHS Markit said.

     "The clear implication is that manufacturers may have to adjust production

down in coming months unless demand revives," he added.

     According to Williamson, the current soft patch has been driven by the

dramatic deterioration in export trend growth -- exacerbated by the negative

trade rhetoric.

     "The survey responses indicate that the slowdown likely reflects worries

about trade wars, tariffs and rising prices, as well as general uncertainty

about the economic outlook. Optimism about the future remained at one of the

lowest levels seen over the past two years," Williamson said.

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

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