The recovery continues in Europe’s manufacturing sector but is it all tariffs frontrunning by US buyers? We’ll have to see. HCOB notes that:
“The upward trend in the headline PMI is still continuing, pointing towards a recovery that is progressing. That is backed up
by the rise in production we have seen since March. What is especially encouraging is that production has picked up across
all four major eurozone economies, which really highlights how broad-based this recovery is. With output rising for three
months in a row, historical patterns suggest there is a 72% chance we will see another increase in the next month. Of
course, one big risk on the horizon is the possibility of the US significantly hiking tariffs on EU imports. That could definitely
cast a shadow over the outlook. Still, companies are noticeably more upbeat than they were last month about producing
more a year from now, which shows a certain resilience, even in the face of potential protectionist moves from across the
Atlantic.
“In May, Europe’s industrial engines seemed to be running in sync. Production rose in Germany, France, Italy, and Spain,
suggesting that shared factors are driving the upswing. Among them is the US tariffs, which likely prompted US buyers to
place orders early. That said, France has not benefited from this trend as much as its peers. Meanwhile, lower interest rates
and falling oil and gas prices are giving the entire sector some breathing room. Looking ahead, German companies are
expected to outpace their European peers, thanks in large part to the new government’s expansionary fiscal policies.
“The ECB is getting some tailwinds for its expected interest rate cuts. The industrial sector has started cutting its sales prices
again after two months of increases, giving the central bank some extra room to move on with its interest rate cuts. Lower
energy prices, which have helped bring down input costs, are likely the main driver behind this shift.”
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