The eurozone manufacturing sector ended 2016 on a high note. At 54.9 in December, up from 53.7 in November, the final Markit Eurozone Manufacturing PMI® posted its best reading since April 2011 and was unchanged from the earlier flash estimate. The average for the final quarter (54.0) was solidly above that for the third quarter (52.1) and signalled the fastest growth since the second quarter of 2011. Moreover, the average PMI reading over 2016 as a whole (52.5) was the highest annual average since 2010.
National data pointed to a broad-based improvement in operating conditions, with headline PMI readings rising in all seven* of the countries covered by the survey. Growth was strongest in the Netherlands and Austria, with rates of expansion hitting levels last achieved over five-and-a-half years ago. PMI indices hit a near three-year high in Germany, an 11-month peak in Spain and a 67-month record in France. Italy, in sixth position overall, also saw its pace of growth improve, while the rate of contraction in Greece eased to the weakest during the current four month sequence of decline.
Underlying the improved performance of the eurozone manufacturing sector was faster growth of production and new orders. Rates of expansion in both were either at, or close to, the steepest since early-2011. Six out of the seven* nations covered by the survey saw faster increases in output and new business. The exception was Greece which recorded weaker rates of contraction.
Companies reported improved levels of new work received from both domestic and non-domestic clients. New export business** rose at the second quickest pace since April 2011, bettered only during this sequence by that achieved at the start of 2014.
Part of the increase in foreign demand reflected a boost to competitiveness from the euro exchange rate. Faster growth of new export business was seen in France, Italy, Spain, the Netherlands and Austria. The rate of increase slowed in Germany, while the pace of decline eased in Greece.
Stronger demand led to pressure on manufacturing capacity, as highlighted by the rate of backlog accumulation hitting a 68-month record. This in turn resulted in further solid job creation, with staffing levels rising in almost of the nations covered (Greece saw a slight decrease).
Price pressures intensified during December. Higher import costs resulting from the depreciation of the euro, combined with increased global commodity prices, led to the sharpest inflation of average purchasing costs for over five-and-a-half years. Strong and accelerated increases were seen in all seven* nations covered.
There was also some suggestion that supply chain pressures were leading to higher costs. Average vendor lead times lengthened to the greatest extent since June 2011.
The increase in input costs was passed on (in part) to clients during December. Output charge inflation accelerated to the quickest pace since July 2011, as selling prices rose across all of the nations covered by the survey. The steepest increases were registered in the Netherlands, Spain and Germany.
Chris Williamson, Chief Business Economist at IHS Markit:
To put the PMI data into perspective, the five-and-a-half-year high reached in December is broadly consistent with factory output growing at an impressive annual rate of approximately 4%.