Manufacturing growth in the euro zone experienced a slowdown in May, as revealed by the S&P Global Eurozone Manufacturing PMI Index. The index, which measures factory activity, fell to 51.6 from April’s 52.2, indicating a deceleration in growth. Despite this, the figure remained above the 50.0 mark, signifying continued expansion.
Impact of Rising Costs and Supply Chain Disruptions
The slowdown in growth is attributed to stagnating demand and supply-chain disruptions, particularly those linked to ongoing conflicts in the Middle East. These disruptions have pushed input costs to their highest level in four years, placing additional pressure on manufacturers. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that while manufacturers reported expansion for the fourth consecutive month, the sector is struggling under the weight of rising prices and supply disruptions.
New orders, a key indicator of the sector’s health, stagnated in May, reversing the growth seen in April when demand surged. Export orders also declined, contributing to the overall demand pullback. Factory output continued to expand, but at the slowest pace since January, with the output index dropping to a four-month low of 51.3 from 52.3 in April.
Employment and Inflation Concerns
Employment in the manufacturing sector has been on a decline for three years, and while manufacturers remain optimistic about the future, their confidence is below the long-run average. The rise in input costs, driven by increased energy and raw material prices, has led firms to pass on some of these costs to customers. This has resulted in the fastest rate of price increases in three-and-a-half years, which is expected to drive inflation higher in the coming months.
Supply chain delays have worsened, reaching their most severe level since June 2022, further exacerbating cost pressures. Policymakers face a challenging situation as they attempt to balance containing inflation with the risks associated with aggressive interest rate hikes in the face of faltering demand.
The European Central Bank (ECB) is expected to raise its deposit rate this month and at least once more this year to prevent higher energy prices from feeding into core inflation. Inflation is projected to have risen further above the ECB’s 2% target in recent months.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
