Eurozone Manufacturing Remains in Contraction as Global Demand Slows

Hamburg Commercial Bank (HCOB)

The eurozone manufacturing sector continues to struggle, marking its 28th consecutive month of contraction in October 2024. According to the latest data from Hamburg Commercial Bank (HCOB), the region's manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, was 46.0 in October, slightly up from 45.0 in September. A PMI reading below 50 indicates a contraction, and this prolonged downturn represents the longest period of sustained decline in the sector since at least 1997.

Declining Production and Weak Orders

Production volumes in the eurozone fell for the 19th consecutive month, as new factory orders also declined. Companies continued to draw raw materials from existing inventories, a hangover from the stockpiling practices that occurred during the COVID-19 pandemic. HCOB's chief economist, Cyrus de la Rubia, explained that businesses had purchased and stored materials and intermediate goods in unprecedented volumes during 2021 and 2022. However, with sluggish global demand and no immediate need to restock, companies have now become more cautious in their purchasing strategies.

This shift in behavior reflects the broader deflationary cycle currently gripping the eurozone’s manufacturing industry. The lack of fresh demand is exacerbating the competition among manufacturers, putting downward pressure on prices and profit margins. With no immediate catalyst to drive recovery, the manufacturing sector remains stuck in a challenging environment, hindered by a global slowdown and weak consumer spending.

Global Trends Affecting Manufacturing

In addition to the eurozone’s struggles, the UK manufacturing sector also slipped back into contraction in October, marking the first decline in six months. The S&P Global manufacturing PMI for the UK fell to 49.9, down from 51.5 in September. This decline in production growth is attributed to a "wait-and-see" approach by businesses ahead of the government's first budget under the new administration. While production had been higher for six consecutive months, new factory orders in the UK dropped for the first time since April 2024. Meanwhile, input cost inflation fell to a 10-month low, indicating a reduction in pressure on the manufacturing sector's operational costs.

Conclusion

The ongoing contraction of the eurozone manufacturing sector reflects a broader trend of weakened global demand, inventory overhangs, and heightened competition, all contributing to a deflationary environment. With no clear signs of recovery in the immediate future, manufacturers are facing an extended period of uncertainty. Businesses will need to adapt to changing conditions, including potential shifts in global supply chains and demand patterns, if they hope to navigate this prolonged downturn.