Europe PMI Downturn Eases, but Recession Continues

The eurozone manufacturing downturn eased for the first time in four months in May. Moreover, all sub indices from the latest survey improved on the earlier flash estimates except suppliers’ delivery times

At a 15 month high of 48.3 in May, up from April’s four month low of 46.7, the seasonally adjusted Markit Eurozone Manufacturing PMI indicated the slowest pace of contraction since February 2012. Business conditions still deteriorated overall. However, with the current downturn extended to a twenty second month.

PMIs for all of the nations covered by the survey signalled weaker rates of contraction in May. The Markit Eurozone Manufacturing PMI signalled the slowest rate of contraction overall and moved close to the stabilisation level as output and new orders both rose for the first time in three months. The German PMI signalled the slowest rate of contraction overall and moved close to the stabilisation level as output and new orders both rose for the first time in three months.

If Spain is a fair proxy for the weaker southern European nations, there may be a very dim, but still potential improvement there. According to Markit’s data:

Although the Spanish manufacturing sector remained in contraction in May, rates of decline in output, new orders and employment all eased markedly during the month. Reports suggested that the slower deterioration in business conditions partly reflected growth in new export orders. Meanwhile, input costs decreased for the third successive month and firms continued to lower their output prices.

The seasonally adjusted Markit Purchasing Managers’ Index (PMI) a composite indicator designed to measure the performance of the manufacturing economy rose to 48.1 in May from 44.7 in the previous month. Although signalling a further worsening of operating conditions, the index rose to its highest since May 2011.

It is too early to say why exports from Spain improved. It might be that a falling cost of labor has made export prices lower. Or some of the stronger nations in the region, and perhaps elsewhere, may have improved as portions of the global economy have healed. The same factors eventually might help Portugal and Greece pull out of recession.