Euro Zone Manufacturing: Signs of Recovery Amid Contraction

Euro zone manufacturing output rose at its fastest pace in over three years, despite ongoing contraction. The PMI increased to 49.0 in April, indicating stabilization in the sector. New orders fell slower, and Germany, France, and Italy showed improvements, with Greece leading the growth. Factory employment continued to decline, but profit margins improved.

In April, the euro zone saw its manufacturing output grow at its quickest pace in over three years, even as overall factory activity remained in contraction, according to a recent survey. The HCOB's euro zone final headline manufacturing Purchasing Managers' Index (PMI) reached 49.0, its highest mark in 32 months, though still below the 50-point threshold that differentiates growth from contraction.

Cyrus de la Rubia, Hamburg Commercial Bank's chief economist, expressed optimism, noting that the manufacturing sector appears to stabilize, a surprising outcome amid recent uncertainties. Despite weak demand, the output sub-index increased to 51.5, marking a second consecutive month of production growth. However, export markets dragged, with overseas orders declining faster than new business overall.

Big economies like Germany, France, and Italy demonstrated progress, even as their PMIs remained under 50, while Greece led with a 53.2 reading. Factory employment declined for the 23rd month, though less severely, as manufacturers faced reduced input costs and rising output prices. Despite production gains, business confidence weakened, with a comprehensive PMI report, including the services sector, expected to shed more light on the economic health next week.

(With inputs from agencies.)