Manufacturing activity in Europe saw a notable decline in June, with demand falling at an accelerated rate despite price cuts by factories, according to a recent survey.
The Hamburg Commercial Bank’s Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 45.8 in June from 47.3 in May. This dip from the preliminary estimate of 45.6 highlights a sector that has been contracting for two consecutive years, remaining below the critical 50 mark that separates growth from contraction.
The PMI is a critical indicator of economic health in the manufacturing sector, with values above 50 indicating expansion and below 50 indicating contraction.
Germany, which accounts for a significant portion of Europe’s economy, saw a decline in its factory sector.
In France, the manufacturing recession deepened further.
The PMI for Italy was the only exception among major European economies, managing to avoid a fall despite widespread challenges.
A eurozone index measuring output fell to 46.1, a six-month low, while new orders dropped to 44.4 from 47.3.
Despite this, manufacturers continued to reduce prices for the fourteenth consecutive month.
These figures underscore the persistent weakness in demand and the ongoing struggle for recovery in the Euro zone’s manufacturing sector.
Asian factories show strength
In contrast, Asian manufacturing showed robust performance. Japan faced increased costs due to a weak yen, yet its manufacturing PMI remained steady at 50.0 in June. South Korea’s factory activity surged, with PMI growth reaching its highest in 26 months.
Similarly, Vietnam and Taiwan also reported stronger manufacturing activity.
China’s Caixin/S&P Global manufacturing PMI rose slightly to 51.8 in June, showing the fastest growth in over three years, despite weak domestic demand. Official PMI data had indicated a second consecutive month of decline in manufacturing activity, reflecting ongoing challenges in the Chinese economy.
These figures are significant as they highlight the resilience of Chinese manufacturers in ramping up production despite internal economic pressures.
What is PMI?
The PMI is a survey-based economic indicator designed to provide a snapshot of the health of the manufacturing sector. It is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment.
The PMI is widely used by policymakers, financial analysts, and business decision-makers to gauge economic trends and make informed decisions.
While Europe grapples with a manufacturing downturn, Asia’s robust factory performance offers a glimmer of hope for global economic stability.
The mixed results underscore the uneven pace of economic recovery across different regions, with policymakers closely monitoring these developments to navigate future challenges.
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