Euro area: industrial sector contracted in April

  •   06/05/2020 - 08h53
  •   DEHOUI Lionel

Beyond IHS Markit's expectations, the eurozone manufacturing sector contracted more sharply than expected. The contraction stood at 33.4 in April compared to 44.5 in March. The index for the industrial sector is slightly below the one provisionally forecast and announced in April: 33.6. However, a 10% drop in the manufacturing sector for the first three months is envisaged by the Purchasing Manager's Index (PMI) data. In addition, a recovery in industrial activity in the euro zone is not expected to be rapid.

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Euro area: industrial sector contracted in April
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A resumption of industrial activities

The revival of activities in the manufacturing sector could face a decline in staff capacity. This is due to the protective measures put in place during the coronavirus health crisis, but also to limited demand. In addition, household consumption would be very insignificant due to the closure of shopping centres. It should be added that the procurement of raw materials and capital goods for the companies could take longer than expected in the coming months.

 

The PMI index

The PMI index, which stood at 33.4 for the month of April, is a first since June 1997 (when the survey was launched). This contraction broke previous records during the financial crisis of 2009 and heralds an unsuccessful start to the second quarter. When the PMI index is above 50, it means that activity is up compared to last month's activity. It is falling when the PMI index is below 50.

 

The German manufacturing sector

Germany's industrial sector experienced the most affected contraction in April and companies in the export business have been cutting jobs at a high rate. The IHS Markit April forecast for PMIs was 34.5. This is the lowest indicator recorded since March 2009. In contrast, an initial forecast of 34.4 was announced. This was followed by 45.4 last March.

Production fell sharply due to the closure of several plants in the sector, but mainly because of the reduction in working hours in the factories. This situation comes in a context of falling export demand, but also a major disruption in raw material purchases. However, firms continue to lay off workers despite the generalised system of short-time working. This may lead to a more difficult recovery of activities.

 

The French industrial sector

In France, the industrial sector was in recession last month due to measures such as containment to reduce the risk of Covid-19 spreading. According to the forecasts published by IHS Markit in April 2020, the index is set at 31.5 for a first forecast and afterwards at 43.2 in March. However, the finding is that the manufacturing index is below the threshold and is at its lowest level since 1997.

Relief is coming to the players in the French manufacturing sector with the gradual deconfinement of 11 May that is being announced.