Euro Zone Manufacturing PMI Hits 31-Month High; Factory Activity In Germany, Italy, Spain and UK Continue To Expand While France Continues To Slow

Activity in the 17-member euro zone’s manufacturing sector rose to a 31-month high in December, in line with expectations, and indicating a sustained economic recovery in the region. However, factory activity in the UK unexpectedly moderated slightly even as the sector continued to maintain upward momentum, data released on Thursday showed.

A final reading of the manufacturing purchasing managers’ index, or PMI, for the euro zone, published by Markit on Thursday, rose to 52.7 in December, unchanged from the flash PMI, but up from the 51.6 reading in November. The index has remained above the 50-point threshold, which separates expansion from contraction, throughout the second half of 2013. The uptick in the index was fueled by an increase in new export orders and output, with December posting the steepest rate of expansion in over two-and-a-half years, helping the region's manufacturers to halt further job cuts.

“A strengthening upturn in the manufacturing sector is helping the euro area recovery become firmly established. The latest numbers are consistent with production growing at a quarterly rate of approximately 1 percent at the end of the year,” Chris Williamson, chief economist at Markit, said in a statement. “With producers reporting further growth of new orders, exports and backlogs of work, the stage is set for a good start to 2014, during which it seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy,” he added.

Germany’s factory activity echoed the growth in the euro zone's manufacturing sector, with its PMI hitting a 30-month high of 54.3 in December, from a flash reading of 54.2, and higher than the reading of 52.7 recorded in November. The strong increases in output and new orders contributed to a rise in employment numbers for the first time since March.

Manufacturing activity in other countries in the region, except France and Austria, rose in December, with PMIs in Italy and Netherlands at 32-month highs; Greece at a 52-month high; and, Spain and Ireland hitting two-month highs. Austria’s manufacturing PMI in December stood at 54.1 -- a two-month low.

However, the French manufacturing sector continued to contract with its PMI dropping to a seven-month low of 47.0 in December, down from 47.1 in November. A preliminary reading of the survey had showed the sector posting 47.1 points.

“France, however, remains a concern. While Germany, Italy and Spain are seeing the strongest output growth since early-2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses. This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers,” Williamson said.

On the other hand, the UK’s manufacturing sector, which has been solidly expanding for the past several months, continued to expand, albeit at a slightly slower rate.

The PMI posted 57.3 in December, down from November’s 33-month high of 58.1, but still at a level indicative of a robust improvement in overall operating conditions, the survey released by Markit-CIPS on Thursday showed. Analysts had expected the number to read 58.0.

“UK manufacturing’s strong upsurge continued at the end of 2013, with rates of growth in production and new orders still among the highest in the 22-year PMI survey history,” Rob Dobson, a senior economist at Markit said, in a statement.

“UK exporters are also finding pockets of strength, with sales of capital and intermediate goods rising solidly to destinations such as Brazil, China, Ireland, Russia and the USA. The strong performance of intermediate goods manufacturers suggests that firms are refilling their warehouses, while robust growth at consumer and capital goods producers indicates that household and investment spending are also still playing a key role.”