RO: BCR Romania Manufacturing PMI back in contractionary mode

Instant Comment , 1. Aug.
Broad-based weakness in manufacturing

Activity in the Romanian manufacturing sector contracted in July compared to the previous month, with BCR Romania Manufacturing PMI dropping to 47.8, after three consecutive months at or above 50 no-change mark. Hence, the Romanian manufacturing sector is back in contractionary territory at the start of the third quarter after a short-lived expansion in the second quarter. The decline was broad-based with all five components having a negative directional contribution.

The output component posted a second consecutive monthly contraction in July. Since the start of data collection in July 2023, the output component has posted only two readings above 50-mark in April and May 2024. Moreover, new orders dropped sharply below the 50-mark, with domestic demand unable to offset the weak export orders. We continue to see the export-driven manufacturing sector recovery dependent on the rebound in external demand. The HCOB Manufacturing PMI flash release for the German economy, which is the main trading partner for Romanian manufacturing sector, came in lower in July vs June, contrary to Bloomberg survey median which was expecting an improvement. Hence, it is unlikely that we will see a consistent gain in momentum for Romanian manufacturers any time soon. Adding to the bleak mood, the Future Output index dropped to the lowest level on record in July as some companies are seeing challenging economic conditions in the year ahead, though it remained well above the 50-threshold. All-in-all, it is likely to take longer than anticipated until we should see a meaningful and sustainable rebound in the manufacturing sector.

Employment component of the index remained below 50 in July. The monthly rate of job shedding was one of the quickest seen this year. Input prices inched higher in July with the rate of input price inflation the second-fastest on record with raw material, labour and fuel cost, including the impact of the excise duty, mentioned as drivers. The output prices rose by a lesser extent indicating that the burden of higher input prices was not fully transmitted towards the customers and are eroding the profit margins of the manufacturing companies. Output prices in the manufacturing sector are closely linked to the consumer prices, though the effects are usually seen with some lags.