While a third wave of coronavirus infections in Europe has forced some governments to unwillingly restrict movement to mitigate the spread, thus impacting their service industries, factories have largely remained open and have, all-in-all, performed well.

Eurozone factory activity growth surged to a record high in April, boosted by surging global demand, though supply constraints ran at unprecedented levels, leading to a record build-up of unfulfilled orders. Operating conditions improved at a rate that surpassed March’s survey record.

The Eurozone Manufacturing PMI stood at 62.9 in April, largely unchanged from a preliminary estimate of 63.3. The reading signalled the fastest pace of expansion in the manufacturing sector since data collection began in June 1997.

A reading above the 50 mark indicates an expansion.

Growth rates for aggregate manufacturing output and new orders remained close to March’s survey records as firms noted a rise in market confidence. New order books expanded sharply amid evidence that both manufacturers and clients anticipate a sharp rise in activity over the coming months as coronavirus-inflicted restrictions are relaxed. A rise in new business added to the overall workload with firms, reporting a rise in backlogs of unfinished business at a survey record pace. Backlogs have now risen for nine months in succession. Average lead times for the delivery of inputs deteriorated to a degree unsurpassed in the survey’s history. A mismatch of supply and demand, combined with ongoing challenges in transportation networks, especially for sea freight – alleviated following the Suez Canal blockage, was widely reported as causal factors. The increase in backlogs spilt over into the labour market. In April, firms chose to take on additional workers, increasing payroll figures for a third successive month. The net gain proved the best since February 2018, with all nations registering higher employment figures. On the price front, input cost inflation was the second-highest on record, while companies raised their charges to the highest degree in over 18 years of data availability.

Looking ahead, manufacturers were at their most optimistic in nearly nine years of data availability amid hopes that successful vaccination programmes will lead to a strong rebound in economic activity.

While factory activity in leading Eurozone economies remained largely in line with March’s data, improvements were recorded in Italy and Spain.

Manufacturing PMI of the Eurozone’s second-largest manufacturing economy after Germany, Italy, rose to an all-time high of 60.7, from 59.8 in the previous month. Key to the stellar performance in April was the quicker growth of both production and new work. Output increased at the third-steepest pace in over two decades, while growth of new work was the most since April 2000, amid reports of strengthening demand and improved market confidence. Sentiment was among the strongest on record, with optimism linked to improved demand and hopes of a robust economic recovery.

Although below economist expectations of 59, Spain’s Manufacturing PMI rose to 57.7 in April from 56.9 in the previous month. The latest reading pointed to the third consecutive month of growth in factory activity. New orders, exports, output, and employment increased sharply. This, aided by the gradual reopening of economies around the world. Looking ahead, business sentiment remained historically high amid expectations of an improvement in activity as coronavirus restrictions are eased.

Manufacturing PMI of Europe’s largest economy, Germany, although revised lower to 66.2 from a preliminary of 66.4 and down from a record high of 66.6 in March, continued to enjoy a historically strong growth rate in April. An expansion in output and new orders eased but remained close to the record highs witnessed in March. Growing pressure on capacity and strong business confidence fuelled an acceleration in job creation.

Indeed, the most recent data portrays an improvement in manufacturing and that businesses have become more optimistic about factory activity in a year. Although some uncertainties, mainly revolving around the coronavirus pandemic and a return to normality, remain, the accelerating pace of vaccinations across Europe and signs that infections may have peaked bode well.

Most certainly, recent announcements surrounding the easing of coronavirus-inflicted restrictions, ultimately beneficial to both the manufacturing and services sector within the single currency bloc, shall further boost sentiment.

Disclaimer: This article was written by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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