Euro zone factory activity contracted for third month in April – PMI

Euro zone factory activity contracted for a third month in April, hurt by weak global demand, rising trade protectionism and concerns over Britain’s upcoming departure from the European Union.

IHS Markit’s April final manufacturing Purchasing Managers’ Index registered 47.9, beating March’s six-year low of 47.5 and just above a flash estimate of 47.8.

But that was its third month below the 50-mark separating growth from contraction.

An index measuring output change, which feeds into a composite PMI due on Monday that is seen as a good gauge of economic health, also held below break-even. It rose to 48 from 47.2 in March.

“The manufacturing sector remained deep in decline at the start of the second quarter,” said Chris Williamson, chief business economist at IHS Markit.

“The survey’s output index is indicative of factory production falling at a quarterly rate of approximately 1 percent, setting the scene for the goods-producing sector to act as a major drag on the economy in the second quarter,” he added.

The bloc’s economy expanded a slightly better-than-expected 0.4% in the first quarter, rebounding from a slump in the second half of 2018, official figures show.

An April Reuters poll predicted growth would be 0.3% this quarter and as the bloc’s prospects have dimmed, expectations for interest rate hikes from the European Central Bank were also pushed further into next year.

Although rising from recent lows, the new orders index still showed a seventh month of decline in a row.

Stocks of raw materials were run down, backlogs of work were completed at a pace not seen in over six years and headcount was barely increased.

So while optimism picked up a touch in April – the future output index rose to 55.7 from 55.5 – it remained weak compared with historical levels.

“Some encouragement can be gained from the PMIs having risen in all four largest euro member states in April, and forward-looking indicators such as future expectations, new order inflows and the orders-to-inventory ratio having all come off their lows,” Williamson said.

“But it remains too early to call a turning point,” he added.

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