The contraction in euro zone manufacturing has shown signs of improvement in May, nearing stabilization as output increased for the third month in a row, supported by demand that is close to leveling off, according to a recent survey. The HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 49.4 in May, up from 49.0 in April. This marks a 33-month high, although it remains below the neutral level of 50.0 that separates expansion from contraction.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that the upward trend in the PMI indicates ongoing recovery efforts. Manufacturing output continued to grow, maintaining an output index of 51.5—its highest level since March 2022. New orders are also nearing stabilization after nearly two years of decline, while export orders have reached their highest point in 38 months.
Job cuts have also slowed, with employment decreasing at the most gradual rate since September 2023. Additionally, purchasing activity shrank at its slowest pace in nearly three years.
Looking at specific countries, Greece led the rankings with a PMI of 53.2, remaining stable from April. Spain showed a return to growth with a PMI of 50.5, while France approached stabilization at 49.8, its highest in 28 months. Although Germany continued to lag with a PMI of 48.3, it registered one of the mildest downturns in three years.
Despite concerns over potential increases in U.S. tariffs on European imports, manufacturers’ confidence for the upcoming year has reached its highest level since February 2022. The future output index surged to 61.6, up from 58.0.
Moreover, input costs have decreased for a second consecutive month, with reductions reaching their most substantial rate in 14 months. As a result, factories have begun lowering their selling prices for the first time since February.
De la Rubia commented on the implications for the European Central Bank (ECB), suggesting that the easing of sales prices may provide the bank with additional flexibility for future interest rate cuts. Economists polled by Reuters anticipate that the ECB will cut its deposit rate on Thursday, with expectations for further reductions in the coming months.
This uptick in manufacturing could signal a hopeful turning point for the euro zone economy, with broader-based recovery indicators emerging across the major economies in the region.