Manufacturers across the euro area stepped up purchases of raw materials in April, building safety stocks as concerns over supply disruptions and rising costs linked to the Middle East conflict intensified, a survey released on Monday showed.
The S&P Global Eurozone Manufacturing PMI - the headline index that signals expansion when above 50.0 - rose to 52.2 in April from 51.6 in March, matching a preliminary estimate. Survey respondents said some of the increase reflected customers and firms buying immediately rather than waiting, in anticipation of further price rises and possible shortages. New orders, an important barometer of demand, expanded at the fastest pace in four years.
"Production and order books are being buoyed by the building of safety stocks as a result of widespread concerns over supply shortages and rising prices emanating from the war in the Middle East," said Chris Williamson, chief business economist at S&P Global Market Intelligence. He cautioned readers to give weight to a different measure for a clearer picture of where activity is headed.
That gauge - the future output expectations index, which reflects firms' optimism about production over the coming months - fell to 55.4 from 58.2, its weakest reading in 17 months.
Growth in the euro area had already slowed in the prior quarter, with GDP rising just 0.1%, below the 0.2% expansion that had been expected. Meanwhile, manufacturers faced sharply higher costs: the input prices index surged to 77.0 in April from 68.9 in March. Respondents also reported raising factory gate charges at the fastest rate since January 2023.
Official data released last Thursday showed inflation in the common currency area rose further in April, with energy costs cited as a contributing factor. That development reinforced the case for higher interest rates in the view of many market participants.
The European Central Bank kept its deposit rate unchanged at 2.00% as expected at its meeting on Thursday, but signalled growing concern about the recent jump in inflation. Markets are pricing in several rate increases this year, with the first likely to arrive in June, according to the survey summary.
Regionally, all eight euro zone countries monitored by the survey recorded headline PMI readings above the 50.0 expansion threshold - the first time that has happened since June 2022. Ireland posted the strongest headline PMI, followed by the Netherlands. France and Italy both registered their strongest readings in about four years. Germany’s headline number eased slightly compared with the previous month.
Despite rising backlogs of work, employment in factories continued to fall, extending a run of job cuts to almost three years. Supply chain strains also intensified: delivery times lengthened to their slowest pace since July 2022. The survey attributed slower deliveries to bulk ordering by customers, disruptions related to the Middle East conflict, and reduced availability of some raw materials.
Key takeaways
- Headline PMI rose to 52.2 in April from 51.6, driven in part by precautionary stockbuilding.
- Future output expectations slipped to 55.4, the weakest in 17 months, indicating softer optimism about prospective production.
- Input costs jumped sharply - input prices index 77.0 from 68.9 - and selling prices rose at the fastest pace since January 2023.
Impacted sectors and markets
- Manufacturing and industrial goods - clear effects from inventory accumulation, higher input costs and longer supplier lead times.
- Energy markets and inflation-sensitive sectors - rising energy costs contributed to higher inflation readings and influenced central bank expectations.
- Financial markets and interest-rate sensitive assets - elevated inflation and ECB signalling pushed market expectations toward additional rate hikes.