The rise in interest rates has a full impact on the activity of factories in the euro area. This is reflected in the PMI manufacturing index known this Monday. The June reading is the lowest in 37 months, since May 2020, just after the outbreak of the pandemic, and the purchase of inputs falls at one of the fastest rates in 26 years, since data was collected.
“There is increasing evidence that the industrial sector, which requires a lot of investment, is reacting negatively to the ECB’s interest rate hikes,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which compiles the index with to S
The PMI – a thermometer that measures activity, orders, occupation, stocks or deliveries – remained at 43.4 points. Below 50 it enters contraction territory, where it has been for three months. Austria, Germany, Italy, Ireland or the Netherlands registered the strongest declines in three years.
The drop in demand, led by Germany, Italy and France, is the main factor behind the reduction in production. This demand falls more than manufacturing, which is holding up due to backorders. In any case, it impacts employment with the first staff reduction since January 2021.
“The manufacturing PMI adds to the grim set of indicators for the sector,” said Nicola Nobile of Oxford Economics. “The industrial sector remains an area of ??weakness for the eurozone. It is expected to remain flat at best for the rest of the year in most countries,” he added. And that problems such as the break in the supply chain and eternal delivery times have been solved.
Spain is somewhat better than the rest of its neighbors, with an index of 48 points, the lowest in six months. The drop in demand is also being faced with workforce cuts, with the first drop in the level of employment since November 2022, and the purchase of fewer inputs.
“In Spain, there are signs of a slight recession in the manufacturing sector, or perhaps just stagnation,” De la Rubia said. Intermediate goods are the ones that suffer the most, while in investment goods production stabilizes due to the boost of projects financed by Next Generation funds.
