• Prior 43.4

The worsening demand conditions is leading to an accelerated fall in production volumes, new orders, employment and purchasing activity in the euro area in July. The only silver lining is that alongside improved supply, it is leading to a fall in costs as average input prices are seen falling at the most rapid pace since May 2009. HCOB notes that:

“It looks like the manufacturing recession is here to stay in the eurozone. Stronger declines in output, new orders and purchase volumes at the start of the third quarter back up our view that the economy as a whole is in for a bumpy ride in the second half of the year.

“The manufacturing sector’s rough patch is the result of a classic inventory cycle, where companies have purchased too many goods. As companies adapt to the new reality of reduced demand and faster deliveries, there will be some over-the-top reactions in terms of destocking. As a result, renewed stock-building can be expected in 2024, taking the sector out of the slump. Until then, there are some lean times ahead.

“The further and sharper deterioration in backlogs of work has seen manufacturers reduce employment further, though still at a modest pace. Manufacturers suffer from a global drop in this sector, especially in top eurozone export destinations like the US and China. As such, new export orders, which include also intra eurozone trade, have gone downhill fast.

“The European Central Bank will be pleased to see that deflation of output prices has picked up speed again, falling at the most rapid pace in almost 14 years. However, the worries about services inflation remain high on the agenda.”