EUROZONE GLOBAL OUTLOOK

Definitely in a Recession That Will Impact Trade

By Chris Anderson

The latest data collected in the Eurozone’s manufacturing sector does nothing to allay previously mentioned pessimism. Both France and Germany are looking to lower production targets over the next 12 months. With the exception of Greece, probably Europe’s lowest contributor to manufacturing, all countries are showing contraction. Austria has a PMI in the high 30s meaning their recession is deep.

Production is falling at the sharpest rate since October last year when concerns regarding the price and supply of energy soared. Demand for Eurozone goods fell sharply at the end of the second quarter, with weak sales performances particularly evident in Austria, Germany, and Italy.

Manufacturing employment declined for the first time since January 2021, and business confidence dipped to a seven-month low. The Eurozone PMI fell to 43.4 in June, down from 44.8 in May, and a twelfth successive month in contraction territory. Overall, the headline figure signaled the sharpest deterioration in the health of the Euro area goods-producing sector since May 2020.

At a country level, June survey data showed manufacturing performances were at their worst since the initial phase of the COVID-19 pandemic in the first half of 2020 for many of the monitored nations. Austria, Germany, Italy, Ireland, and the Netherlands registered their sharpest declines in business conditions in over three years. Greece once again bucked the broad trend of deterioration and recorded a fifth consecutive improvement in manufacturing sector performance.

June survey data signaled a third successive monthly reduction in manufacturing production levels across the Euro area. The decrease was strong, accelerating since May to the strongest since October last year.

According to market groups data, contractions in consumer, investment, and intermediate goods output all accelerated during the month, with the latter recording the quickest decrease. Total new orders fell rapidly and at the strongest pace for eight months during June. New export orders declined for the sixteenth successive month.

Germany’s PMI dropped from 43.2 in May to 40.6 in June, its lowest reading in over three years. Demand has taken a hit, both domestically and abroad. This is not good news for the export powerhouse that is Germany. Hence the fastest rate of contraction in production for eight months. There is pessimism for the year ahead. But, despite all the negative signs here, the consensus is looking for a mild downturn, and the survey results, therefore, by no means suggest panic.

The Outlook: The Eurozone will remain in contraction, likely for the balance of 2023. At present, 2024 looks weak for the Eurozone unless they experience a soft landing. However, as discussed on Manufacturing Talk Radio, soft landings can become very protracted, and the subsequent takeoff may be a slow climb. n

AUGUST 2023