European Manufacturing Stable, But A Mixed Bag

Overall, Germany is the strongest and Italy reported record lows, while France saw record employment and Spain is optimistic for growth in the months ahead.

EDINBURGH, Scotland - On the heels of a stronger-than-expected U.S. manufacturing outlook, the Royal Bank of Scotland (RBS) released its European PMI reports for April. A full breakdown by country is as follows:

(Click on the countries to view the full release.)


April's PMI was at a four-month high of 53.9, but only slightly higher then March's 53.8.

Output expanded, though the index slipped from 58.3 in March to a three-month low of 55.7 in April. New orders inched up from 55.7 to 55.8. Export orders dropped to 52.5 from 54.5.

Backlogs of work slipped from 60.1 to 54.4, indicating a continued rise in outstanding business.

Input costs reached a six-month high of 69.9, due to higher costs of items such as steel, aluminum, copper, plastics, timber and foodstuffs. The output prices index dropped to 53.6, its lowest level since February 2006, as output charge inflation eased.

Employment expanded to 54, reaching its highest level in six years.

“French manufacturing maintained solid growth momentum in April, mainly supported by domestic demand. In contrast, export performance has weakened considerably since the start of 2007, hitting a fifteen-month low in the latest month, a sign that France is losing further ground in terms of competitiveness,” commented RBS Country Head of France, Philippe Wahl. “Meanwhile, in an encouraging sign for the labor market, manufacturing employment growth gained traction to reach its strongest level since the start of 2001. Jobs were created in spite of intensifying pressure on firms operating margins, with the differential between input and output price inflation widening further during April.”


The PMI, which had fallen the previous three months, edged up to 57 in April from 56.9 in March.

Output continued to see strong growth for the month, registering 60.6 and the new orders index also indicated strength at 59.5. A push from strong orders and to increase output, manufacturers increased employment, raising the index to 54.2.

Export orders was at 56.2, down from March's 57.7, but still indicating strength. Levels of outstanding business saw significant growth in April, as the backlogs of work index rose to 59.7 from 55.7.

Raw materials prices kept input prices high, with the index at 66.8 from 66.7. Output prices eased to 53.2 from 57.1.

“April data signaled that the German manufacturing economy maintained its impressive performance so far in 2007, reflecting favorable market conditions and healthy order books across the sector. Output growth continued to ease, but the composite PMI edged up and remained at an elevated level,” noted RBS Country Head Germany, Achim Klber. “Overall, the outlook for the sector remains positive, with further robust rises in new orders, employment and work-in-hand providing the momentum for production growth in the months ahead. However, the slowdown in exports growth is noteworthy and will need to be monitored very closely, given that so much of the German recovery has been dependent on the external sector.”


Italy's PMI for April rose slightly to 53.9 from March's 53.8.

The rate of growth for output eased to 56.7 in April from 60.5 in March, as new orders hit a record low of 52.9. Export orders also dropped, going to 57.8 in March to 53.8 in April. Levels of outstanding business were steady, with the backlogs of work index at 52.4.

Employment rose from 51.9 to 54.3, due to expansion programs and hiring of additional sales and marketing staff to drive new business.

Raw materials - particularly oil, steel and zinc - pushed input prices higher. The index for April was 67.9, up from March's 64.4. The rate of inflation remained a concern as output prices registered 54.8 for April.

“Despite the relative stability at the overall PMI level, the composition of the survey shows that the Italian manufacturing sector is facing a slowdown in domestic demand with new orders registering their weakest performance in one and a half years. The first increase in inventories since September 2005 seems to indicate that the slowdown in final demand is somewhat unexpected and will lead to some further slowing in manufacturing activity in the months ahead,” said RBS Country Head Italy, Alessandro Mitrovich.


April's PMI was 56, up from March's 55.4.

Output was strong, but the index slipped to 59 from March's 61.5. The new orders index, despite a drop from 59.7 to 57.7, indicated strong growth. Exports orders showed relative strength with the index at 53.7. Backlogs of work increased to 54.4 from March's 51.3.

Employment growth was solid, though weaker than the previous month, as the index dipped from 54.8 to 53.7.

Input prices rose, though at a weaker rate than the previous month. The index for April was 62.2, down from 67.8 in March. Output prices also rose at a slower rate than the previous month. April's index was 55.9, down from 57.4 in March.

“The Spanish manufacturing PMI signaled a consolidation in the rate of growth of production at around 4.5-5 percent in April. Output and new orders increased strongly, while new export growth was robust despite the ongoing strength of the euro. Moreover, the exchange rate appreciation contributed to a welcome reduction in input cost inflation, albeit still strong. Employment expansion was robust and a further rise in backlogs of work suggests there is solid growth momentum going forward,” said RBS Country Head Iberia, Juan Carlos Garcia-Centeno.

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