Euro zone manufacturing growth eases in October as cost pressures build

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Eurozone manufacturing growth eases

Highlights

Eurozone Manufacturing PMI falls to 52.7 in October from 52.9 in September, remaining above 50.0 and signaling continued expansion.
Factory input costs rise at the fastest rate in five months, as manufacturers sharply increase selling prices and face worst delivery delays since June.
Crude oil trades above $116 a barrel, 60% higher than pre-Iran war levels, reinforcing inflation pressures as ECB leaves rates unchanged but December hike expected.

October PMI signals slower but steady expansion

As reported by Reuters, citing S&P Global, the Eurozone Manufacturing Purchasing Managers' Index slips to 52.7 in October from 52.9 in September, which had marked the highest reading since May 2022. The reading stays above the preliminary estimate of 52.4, and remains above the 50.0 threshold that indicates growth in activity.

Total new orders rise at a slower pace during the month, even as export orders record their sharpest increase in more than four and a half years. Six of the eight euro zone countries tracked in the survey post growth in activity, while France and Italy are the exceptions.

Factory output eases to a four-month low of 52.8 from 53.6 in September, though it remains above the survey's long-run average. Manufacturers also add staff for a third consecutive month, suggesting firms still expect demand to hold up.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says another solid PMI reading extends the euro zone's best growth spell for manufacturing in more than four years. He says the sustained growth since February shows resilience despite tariffs, conflicts in the Middle East and Ukraine, and the higher costs and supply difficulties linked to those disruptions.

Higher energy and supply costs raise ECB pressure

Operating costs for factories rise at the fastest rate in five months in October, and companies lift selling prices sharply in response, with the pace of increase broadly unchanged from September. Supply-chain strains also intensify, with delivery times lengthening to their worst level since June.

Manufacturers increase purchasing volumes at the fastest rate in nearly four and a half years and stockpile raw materials for the first time since December 2022. Crude oil futures trade above $116 a barrel, about 60% higher than pre-Iran war levels, adding to broader cost pressures across the sector.

The figures suggest manufacturers are holding up despite tariffs, conflicts and surging energy prices, but they also reinforce concerns about inflation. The European Central Bank leaves interest rates unchanged last week, yet economists polled by Reuters last month expect another increase in December.

In our earlier article on Mario Draghi’s warning about the policy trade-off between inflation control and long-term growth, we highlighted his argument that keeping interest rates above growth for too long can worsen debt dynamics and increase pressure for higher inflation. He urged central banks to prioritize price stability while keeping rates as low as possible to avoid unnecessarily damaging investment, productivity and Europe’s resilience to recurring supply shocks.

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