Today, pay attention to the latest European PMI purchasing manager index released by S&P on January 2! In the last month of 2022, the strength of the decline in the manufacturing industry in the euro area eased somewhat, because the inflation pressure weakened and the supply chain conditions became more stable, which created some breathing opportunities for commodity producers. The weakness of customer demand is still obvious because of the sharp decline in new orders. At the same time, despite the decline in procurement activities and production volume, the pre-production and post-production inventories still increased in December. Nevertheless, employment growth continues and business confidence has gradually risen to a seven-month high.

1. Finally, the manufacturing PMI in the euro zone reached a three-month high of 47.8 (November: 47.1). The final Eurozone manufacturing output index was 47.8 (November: 46.0), a six-month high. The S&P Global Eurozone Manufacturing Purchasing Managers Index fell below 50.0 for the sixth consecutive month in December, indicating the deterioration of the business environment faced by Eurozone commodity producers. However, the index was 47.8, higher than 47.1 in November and the highest in three months, indicating a slowdown in the economic decline.


2. European market group data showed that the situation of manufacturers of consumer goods and intermediate goods continued to deteriorate, while the situation of capital goods, which generally refers to all producers assisting in the production of other goods or services, improved slightly.


3. The manufacturing PMI of all the monitored major component indexes of the euro area (estimated to account for 89% of the manufacturing activity in the euro area in total) in December was lower than the key 50.0 boom line, indicating general weakness. That is to say, except for Greece, the economic downturn has eased, and Greece experienced a greater decline in December! The lowest in 24 months!


4. The manufacturing output of the euro zone fell in December and contracted for the seventh consecutive month. That is to say, the decline is not large, which is the lowest level since June. Due to the general downturn in demand for goods in the euro area, the decline in production coincided with a further decline in the inflow of new orders. In line with the output trend, the decline in factory sales has weakened since November, which is the lowest level in four months. The slowdown in the decline of new export business will also help alleviate the decline of overall orders.


5. In the absence of new business growth, Eurozone manufacturers turned their attention to their incomplete workload. The latest survey data showed that the backlog of orders in December fell sharply. Eurozone commodity producers subsequently reduced their recruitment activities, and the rate of job creation slowed to a 22-month low.

6. In order to meet the lower demand, manufacturers in the euro area cut the purchase of raw materials and other parts at the end of the year. The decline was significant, but it was the slowest in three months. The decline in input demand helps to alleviate the pressure on suppliers. Due to reports that the supply of raw materials has improved, the average input delivery time in December tends to be stable.


7. Despite the sharp decline in purchasing activity, the purchasing inventory increased in December. The rate of increase in holdings was minimal, the lowest level in 15 months. At the same time, after the historical strong expansion of inventory after production in recent months, the data in December showed the weakest growth in the current seven-month series.


8. In December, the inflationary pressure in the manufacturing sector across the euro zone eased. The inflation rate of input cost is still high, but it is the lowest level since November 2020. As some companies choose to transfer lower expenses to customers, the output costs are subsequently increased to a weaker extent. In general, the increase in sales expenses is the lowest since March 2021.


9. Finally, business confidence improved for the second consecutive month, rising further from the two-and-a-half low in October. In fact, future output is expected to return to the optimistic region for the first time since August. Nevertheless, business confidence has always been low because inflation, high energy costs and the risk of economic recession have cast a shadow on the prospects.


10. The chief business economist of S&P Global Market Intelligence commented on the final PMI data of the manufacturing industry in the euro area:

"As we begin the new year, the loss rate of factory output has cooled for the second consecutive month, which has brought some encouragement to the troubled manufacturing industry. The number of people who are optimistic about the coming year has exceeded the number of pessimists for the first time since August, suggesting that the confidence of enterprises has improved steadily“

"Because of the signs that the supply chain is healing, the inflationary pressure has obviously weakened, and the worries about the energy crisis in the region have eased, the prospects have become bright, which is due to the government's assistance in part. Therefore, the supply chain and inflation headwinds faced by enterprises have eased from the high vigilance in the autumn“

"However, the good news has been mitigated by the continued weakness of demand. The decline rate of new order inflow continues to be faster than that of enterprise production reduction, which indicates that manufacturers will have to further reduce production in the next few months, unless demand will revive soon. With the global economic background darkening and the interest rate in the euro zone rising again in December, the risk of demand outlook is still downward“

"As for the next year, in addition to paying attention to potential changes in fiscal and monetary policies, as we enter 2023, the first issue that manufacturers need to pay attention to will be the impact of China's changing response to the epidemic on the supply chain and commodity prices, as well as the possibility of sharp changes in energy prices under the changing geopolitical situation. The Ukrainian and Russian war remains the main threat to the stability of the region."