Euro zone manufacturing sees potential signs of recovery in May, PMI shows

LONDON (Reuters) – The long-running downturn in euro zone manufacturing may have turned a corner last month, according to a survey which showed new orders declined at their slowest pace in two years, leading to improved business confidence.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 47.3 in May from April’s 45.7, below the 50 mark denoting growth in activity for a 23rd month. It was just shy of a 47.4 preliminary estimate.

An index measuring output, which feeds into a composite PMI due on Wednesday and is seen as a good gauge of economic health, jumped from April’s 47.3 to a 14-month high of 49.3, albeit below the 49.6 flash estimate.

“This could be the turning point for the manufacturing sector. The industry is on the verge of halting the production decline that has persisted since April 2023,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“Encouragingly, business confidence regarding future production is at its highest level since early 2022.”

Part of that improvement is likely due at least in part to the new orders index – a measure of demand – bouncing to a two-year high of 47.3 from 44.1.

Falling production costs again allowed factories to reduce their prices charged, potentially giving the European Central Bank room to reduce interest rates on Thursday, a widely expected move as inflation eases.

(Reporting by Jonathan Cable; Editing by Susan Fenton)