A recent survey report published today shows that contrary to popular perception, manufacturing actually gained in January in the peripheral European Union member countries, giving rise to hopes that the region is slowly coming out of the downturn, with the notable exception of Greece.
The Markit Eurozone Manufacturing Purchasing Manager’s Index (PMI), the barometer of manufacturing activities across all major European Union economies was up at 57.3 in January from 57.1, recorded in December 2010.
“The data also show a reassuring improvement in the periphery, for manufacturing at least, with Ireland and Italy in particular seeing growth leap higher in January” said Chris Williamson of Markit.
However, companies faced significant pressure on their margins as input costs surged; as a matter of fact, input costs rose fastest since the survey began in 1997. The commodities price surge is expected to stoke inflation further, raising the risk of an interest rate hike by the European Central Bank sooner than later.
The latest figure is the highest since Last April. The index has been above 50 marks for sixteen months in a row; a reading below 50 indicates contraction. With the sole exception of Greece, all eight major EU economies witnessed manufacturing growth.
“Manufacturing continued to act as an important driver of economic growth at the start of 2011. The increase in production regained momentum after a lull last autumn, to run only slightly slower than the surging pace seen in the second quarter of last year”, said Williamson.
Although Eurozone’s economy grew by 1 percent between April and June last year, economists expect annual growth rate to be much lower at 0.3 percent till 2012.
German’s PMI for January remained virtually unchanged while France’s PMI fell as manufacturing slowed down.
Spain’s manufacturing was equal to its highest level recorded in April while Italy’s PMI touched its highest level June 2006.
However, the bigger concern remains the input price index reading of 79.2 for the month of January – highest since the survey began in 1997 and significantly higher than 74.1 recorded in December 2010.
Output price inflation reached a two-and-a-half year high, indicating that firms are passing a part of price rise to consumers, while Markit blamed high cost of metal, fuel and food for the spike in input costs.
“Inflation worries will be stoked by a record rise in manufacturers’ raw material prices, which firms subsequently passed on to customers in the form of higher selling prices”, Williamson added.
Eurozone has reported an inflation of 2.4 percent for January, way above the central bank’s target of 2 percent. Economists are divided if interest rates should be hiked or be kept at the current level till the first half of 2012.