Eurozone manufacturing sector continues to contract sharply in May

According to the report from IHS Markit, there was a noticeable easing in the recent downturn in the euro area manufacturing sector during May, as evidenced by a six-point rise in the IHS Markit Eurozone Manufacturing PMI to a two month high. However, at 39.4, compared to April’s survey record low of 33.4, the index still indicated a considerable rate of contraction in operating conditions. Despite being generally looser across the region compared to April, government restrictions designed to limit the spread of the global coronavirus disease (COVID-19) continued to severely hamper the sector. Latest data indicated that all market groups continued to record notable deteriorations in operating conditions, led by investment goods producers. 

There was a general improvement in PMI readings across the region in May, although all countries continued to experience further deteriorations in operating conditions.

After April’s extreme and survey-record contractions, both production and new orders placed with euro area manufacturers fell at noticeably slower rates in May. However, the net reductions remained severe, in line with ongoing restrictions in place on economic activity. Export sales suffered a similar fate, with the latest data showing the second sharpest fall in 23 years of data collection. 

Faced with ongoing contractions in orders and output, manufacturers continued to cut back on their purchasing in May. Latest data showed another considerable reduction in purchasing activity, although this did little to alleviate supply-side challenges. 

Finally, confidence about the year ahead improved to a three-month high in May but remained inside negative territory as worries about the longer-term impacts on economic activity of the COVID-19 pandemic weighed on sentiment.