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There's a bottom in place in manufacturing activity

Manufacturing Activity Increases in Europe, But Remains in Deep Contraction

Posted Thursday, May 21, 2020 by
Skerdian Meta • 2 min read

There's a bottom in place in manufacturing activity

The manufacturing sector fell into deep contraction in April all over Europe, as the continent closed off due to the coronavirus outbreak. Although, the manufacturing reports today showed a slight improvement so far in May. But, this is just the beginning of the reopening, so I think that in June the situation will be much better. Services have improved as well, but they come from a deeper hole; although, next month they will probably jump higher too.

German Services and Manufacturing PMI Reports

May flash manufacturing PMI 36.8 vs 39.4 expected
April flash manufacturing PMI 34.5
Services PMI 31.4 vs 26.0 expected
April services PMI 16.2
Composite PMI 31.4 vs 33.1 expected
April composite PMI 17.4

Much like the French reading, the bounce in services and composite readings are notable, but again, they are just a reflection of the shift in balance of businesses reporting that conditions are better this month than they were last month – not the magnitude of improvement.

The manufacturing sector only showed mild improvements with Markit highlighting that new businesses and export sales are continuing to stay more subdued on that front.

Markit notes that:

“Any hopes of a swift pick-up in activity across the German economy following the easing of lockdown restrictions have been somewhat dashed by May’s flash PMI survey, which shows activity down again across both the manufacturing and service sectors.
“The rate of decline in activity has eased considerably since the peak of virus containment measures in April, but we are still a long way off business as usual and the path to recovery remains unclear.
“With demand expected to remain below ‘normal’ levels for quite some time, firms are continuing to cut workforce numbers at a worrying rate in order to better align capacity with current conditions. The scale of job losses is a key risk to the longer-term outlook.”

French Services and Manufacturing PMI Reports

May flash services PMI 29.4 vs 28.2 expected
April flash services PMI 10.2
May manufacturing PMI 40.3 vs 36.0 expected
April manufacturing PMI 31.5
May Composite PMI 30.5 vs 32.4 expected
April omposite PMI 11.4

As you would expect, the readings for May are showing a noticeable bounce relative to April – especially in services – as more firms report better business activity this month with lockdown restrictions starting to be eased for the most part.

The survey data period was conducted from 12 May to 20 May. But the devil is in the details. Remember, the headline only captures the shift in balance of businesses reporting better conditions in May than in April.

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