RO: BCR Romania Manufacturing PMI remained in contractionary mode

There was a second consecutive month of decline for the Romanian manufacturing in August, with a BCR Romania Manufacturing PMI reading of 48.4, indicating that the firms included in the survey saw operating conditions deteriorate in monthly terms. With more than half of the year of PMI data, things are looking quite bleak for the Romanian manufacturing sector and judging by the output data for the first six months of 2024 published by the National Institute of Statistics, manufacturing sector might post an annual growth close to zero in 2024. However the headline PMI value itself, , came higher in August vs the 47.8 recorded in July, which can be seen as a positive sign, and it gives hope for higher readings towards the end of the year. Directionally speaking, all components of the PMI had a positive contribution this month.

The still weak demand - as shown by a second consecutive contractionary new orders reading - can be attributed to both internal and external factors. On one hand, external demand still looking quite weak, especially looking at Germany, Romanias main trading partner. The HCOB Flash Germany Manufacturing PMI reached a 5-month low in August at 42.1. On the other hand, internal demand suffers from a structural problem. Even though consumption was on the rise in the first half of 2024, as shown by pretty much all the metrics, most of the manufactured goods sold in Romania come from import - as can be seen in the large trade deficit. Any large swings of internal consumption, consequently, are not fully transmitted to the manufacturing output. We continue to see the export-driven manufacturing sector recovery dependent on the rebound in external demand. One a more positive note, future business expectations brightened in August, with a majority of respondents optimistic regarding future output. Hopes that planned marketing and promotional activity will drive up sales seemed to drive their enthusiasm.

Employment remained in contractionary territory in August, with the value little changed compared with the previous month. Sluggish demand seemed to also affect the need for personnel as reduced workloads were cited by the survey respondents as the main reasons behind the negative evolution. The decline in backlogs of work and stocks of finished products are also a result of low demand as reported in the survey.

Input prices moderated their advance in August, though the pace remained significantly above that of output prices. Raw material, fuel, and staffing costs related to the minimum wage hike were among the drivers cited by firms as main inflationary pressures for the input prices. The rise in input prices is slowly passed toward the consumer, though evidence so far shows that not in the full amount.