- The Eurozone's manufacturing sector continues to reel in prospects and is thus well-positioned to attain its objectives of economic revival.
- Industry analysts believe the Eurozone's manufacturing PMI will rise sharply in coming quarters to above the average level of over three percent.
- While Germany continues to lead in terms of per unit labor cost, its neighbor countries, like Poland and Greece, are emerging as second and third-best performers.
IHS Markit announced that the initial value of the Purchasing Managers Index (PMI) for the manufacturing industry in the Eurozone in February was 57.7, and the expected value is 54.3. During the period, the initial value of the service industry PMI was 44.7, and the expected value was 45.9.
The initial value of the comprehensive PMI was 48.1, and the expected value was 48.
In France, the initial value of the manufacturing PMI rose to a 3-month high of 55 in February, which was higher than January’s 51.6 and expected 51.4.
The initial value of the service industry PMI is 43.6 and the expected value is 47. The initial comprehensive PMI was 45.2, which was lower than market expectations of 47.5.
In Germany, the initial value of the manufacturing PMI rose to 60.6 in February from 57.1 in January, which was higher than market expectations of 56.5.
The initial value of the service industry PMI was 45.9 and the expected value is 46.5. The initial composite PMI rose from 50.8 in January to a two-month high of 51.3.
The Eurozone’s manufacturing sector continues to reel in prospects and is thus well-positioned to attain its objectives of economic revival. The signs are quite encouraging. The euro has continued to strengthen against the dollar and the European Central Bank (ECB) cut interest rates.
These moves, combined with accommodative monetary policy, which is supporting the currency, have resulted in a pick up in investment feeling and consumer sentiment. In view of the present situation, a number of economic analysts predict the Eurozone’s manufacturing PMI will rise sharply in coming quarters to above the average level of over three percent.
Industry analysts believe this rise will be driven primarily by robust domestic demand, buoyed by the sharp downturn in the Eurozone economy. They opine that further cuts by the ECB, and further measures by the European governments, are needed to support industrial activity in the Eurozone, and hence boost consumer sentiment.
Further, the cost of labor, and other factors like bank financing and import duties, are expected to exert a far-reaching impact on manufacturing output. Manufacturing is seen as a pillar of the Eurozone’s economic recovery.
The slowdown is said to be short-lived and will be overcome over the coming quarters with the help of more aggressive policies by the national authorities, particularly the EC and its European Central Bank (ECB).
The manufacturing sector of the Eurozone is characterized by high fixed costs and over-all productivity rates that are much lower than the global average. This has led to a divergence in competitiveness levels between the various countries.
While Germany continues to lead in terms of per unit labor cost, its neighbor countries, like Poland and Greece, are emerging as second and third-best performers. In addition, the recent economic indicators suggest that growth in peripheral countries will continue to be slightly but may pick up from current levels. It is also believed that the rate of inflation will remain subdued in the euro area, possibly easing in late 2021.
The rise in the Eurozone manufacturing PMI is attributed to the fact that export growth has picked up from previous years and industrial growth in peripheral countries is picking up, too. With the rate of trade liberalization, the barriers to entry for small and medium enterprises have come down considerably, which is providing a competitive advantage for exporters.
Other drivers, like higher fixed-income incomes, a more flexible labor market, more attractive markets for investment, and better infrastructure have also played their part. The combination of all these factors and the fall in currency rates have made it easier for exporters to compete successfully.
Global manufacturing activity has picked up in Asia lately, too. While issues like the Eurozone’s manufacturing PMI are a matter of concern for EU governments, there are other factors at work here as well.
For example, the slowing of China’s economy has led to higher inflation across the globe, which is having an adverse impact on consumer demand. Meanwhile, a key issue in the U.S. housing market is the continuing deterioration of the job market for construction workers.
Meanwhile, rising fuel prices and lack of availability of transportation mean that some consumers are cutting back on discretionary spending. As a result, overall economic activity in Europe has actually been quite robust despite the recent banking crisis.