RO: BCR Romania Manufacturing PMI at 48.5 in May
BCR Romania Manufacturing PMI recorded the second consecutive month of improvement in May reaching 48.5 from 48.3 in the previous month. Even though it remained below the 50 neutral mark which still indicates a contraction, the trend appears to be promising. Mays directional improvement of the PMI was mainly driven by the output component. Romanian manufacturing has had slower than expected beginning of the year considering that expectations are for a rebound of the sector in 2025. External demand remains crucial for this scenario to materialize. The HCOB Flash Germany Manufacturing PMI inched up in May to 48.8 reaching a 33-month high.
Based on PMI readings we should expect that industry will not be growth supportive in the first quarter of 2025. In comparison, data for the first two months of the second quarter show some signs of improvement. The expectations continue to be that industrial output will regain its growth momentum in 2025, after two consecutive years of contraction. External demand should play an important role. Significant investments in EU security, along with large fiscal stimulus approved in Germany for infrastructure and defense spending, are likely to boost European industrial production. The uncertainty remains high, especially in the context of the U.S. tariffs. Romania is mostly indirectly exposed to U.S. tariffs through German car industry supply chains.
Manufacturing output registered a contraction in May as has been the case in the past 12 months. The rate of contraction, however, was considerably softer compared to the previous month. Market uncertainty and poor demand were reported as problems. New orders also continued to post a contraction and at a slightly faster pace. International and domestic elevated uncertainty were mentioned by the surveyed firms as causes. New export orders also continued to decline, but the rate of contraction was the softest on record. Elevated uncertainty likely puts some breaks on any sharp rebound, but with better foreign demand, Romanian manufacturing could take a turn for the better in the second half of the year. The evolution of the external demand index looks promising. Business expectations remained positive, but the degree of confidence was among the lowest on record.
Employment showed some signs of improvement in May, with a less pronounced rate of contraction compared to April. Crucially, backlogs of work were on the rise in May, partly due to understaffing. This confirms a build-up of pressure of capacity, which should be good news for employment moving forward. Stocks of finished goods were also on the rise in preparation for future orders. Quantity of purchases and stocks of purchases also suggest that a more intense workflow took place in May, with the latter posting a significant contraction as a result of the need to fulfil the production requirements.
Input prices continued to rise in May, though with the rate of inflation decelerating for the third month in a row. An unfavorable euro exchange rate movement was the principal reason behind the latest increase. Output prices also continued to rise, accelerating compared to the previous month. Some of the rise in input prices was passed through to consumers.