Following month-long movement restrictions, imposed to mitigate the significant rise in COVID-19 cases, investors anxiously awaited November’s PMI figures to provide more clarity into how the less-stringent lockdown measures have impacted sentiment. 

Prior to the more recent lockdown restrictions, manufacturing had somewhat proved to be resilient. Following a slump in April - at the peak of the pandemic, manufacturing PMI figures surged, at times surpassing market expectations, and also pointing to the highest figure in over two years. 

Albeit the restrictions imposed within the Euro area were now somewhat less stringent, a dent to what has been a steady recovery in manufacturing was expected. Following October’s 54.8 – the highest figure in over two years, the Eurozone’s factory growth, albeit beating preliminary estimates, in the month of November cooled, as renewed coronavirus lockdown measures hurt demand. Eurozone’s IHS Markit Purchasing Managers’ Index fell to 53.8. Still, pointing to strong growth in factory activity and above the long-run average.

While the goods sector contributed to the continued expansion within the Eurozone, producers of consumer goods for the first time in six months registered a modest deterioration. Except for Ireland and the Netherlands, all countries within the Eurozone recorded a weakening of their respective PMIs for the period under review. Germany – the driving force behind the bloc’s manufacturing recovery remained the best-performer. Notably, during the period under review, Germany’s Manufacturing PMI inched lower to 57.8 from 58.2 in the previous month.

There was a slight loss of momentum in the pace of factory growth, with both output and new orders rising more slowly amid the second wave of coronavirus cases and new lockdown measures at home and abroad. Although slowing, export orders remained strong amid rising sales to central Europe and Asia, particularly China. The rate of decline in factory employment was the slowest since June 2019 while business confidence was the second-highest on record. This, supported by the prospect of an effective vaccine, possibly bringing an end to the pandemic, and improvement in demand. 

Although at the slowest rate of expansion when compared to the more recent months, Italy’s manufacturing PMI also remained within expansion territory at 51.5 and below market expectations of 52.

The said recovery lost momentum as output growth slowed amid a renewed fall in order book volumes, linked to stricter coronavirus-related restrictive measures. Contrary to the expansion witnessed in both Germany and Italy, France – possibly Europe’s worst hit by second-wave of the pandemic registered its first deterioration in business conditions across the manufacturing sector, following three months of expansion. Looking ahead, business sentiment remained positive, but below the historical average. 

Contrasting Eurozone’s manufacturing data, which overall, pointed lower amid the imposition of new restrictions, China reinforced its recovery trend – affirming its continued improvement in economic conditions, and once more beating consensus estimates. 

In November, China’s General Manufacturing PMI rose to 54.9 from 53.6 in October, this pointing to the seventh straight month of growth in factory activity and the strongest since November 2010. 

Both output and new orders rose at the fastest rate in a decade while employment grew the most since May 2011. Also, buying levels increased at the steepest pace since the start of 2011, with stocks of purchases rising the most since February 2010.

Simultaneously, capacity pressures persisted, with the rate of backlog accumulation being the quickest since April. Despite easing slightly since October, sentiment remained positive. The rapid increase in coronavirus cases and ensuing restrictions, albeit to a far lesser extent, weighed on the Eurozone’s recovery. Meanwhile, China - an economy which responded well to the pandemic and on track to register around a two per cent economic growth, continued to flourish. 

Although the outlook for the Euro area is now seemingly less grim, the said PMI data along with the subdued inflationary figures should further justify the ECB’s widely expected move to further inject monetary stimulus next week. The combination of further fiscal stimulus, along with elevated savings rate and a vaccine being widely available in ‘optimistically’ the very near future, shall undoubtedly bode well. Additionally, China’s recovery and consumption of goods shall further contribute to alleviating the Euro economic area from the despair brought about by the unprecedented COVID-19 pandemic.  

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.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.