S&P Global: Further contraction in June manufacturing output

S&P Global’s June PMI® survey data indicated only a slight improvement in operating conditions across the board in the Greek manufacturing sector.

The overall rise was the slowest on record in the current 16-month period of continuous growth, as output and new orders contracted.

Weak demand from domestic and foreign customers also weighed on job creation as employment growth slowed to the weakest since March 2021.

Companies were also less optimistic about their longer-term expectations, as business confidence fell to the lowest levels recorded in about a year.

Although inflationary pressures remained at historically high levels, the pace of growth eased to the slowest on record in about a year.

However, higher energy, fuel and material costs continued to fuel inflation. The seasonally adjusted Purchasing Managers’ Index of S&P Global for the manufacturing sector in Greece (Purchasing Managers’ Index® – PMI®) closed at 51.1 points in June, a value lower than 53.8 points in May.

The latest reading of the leading indicator indicated only marginal improvement in the health of the Greek manufacturing sector in mid-2022, and the slowest on record in the current period of sustained growth that began in February 2021.

Production across the entire Greek manufacturing sector fell marginally in June. Although the difference was small, the rate of contraction was the fastest since February 2021, as companies reported that lower volumes of new orders and weaker customer demand led to lower output.

Manufacturers indicated a further decline in new orders in mid-2022. Unconfirmed data indicated that price increases and pressure on customer purchasing power acted as a drag on customer spending. The rate of decline was broadly strong and the fastest on record in 16 months.

Meanwhile, demand from overseas customers also fell. New export orders contracted for the second time in four months, and at the steepest pace since January 2021.

Higher selling prices and uncertainty over the war in Ukraine reportedly weighed on demand conditions.

In terms of prices, inflationary pressures eased in June. Input costs continued to rise at a notable pace, but were the slowest on record since August 2021.

The companies indicated that higher input prices were a result of further increases in supplier, material, fuel and energy costs. Accordingly, the growth rate of selling prices weakened at the end of the second quarter.

Greek goods producers highlighted ongoing efforts to pass on higher costs to customers. The rate of charge growth was significantly higher than the survey average, but the slowest since September 2021.

Coinciding with lower new orders and reduced pressure on production capacity, the pace of job creation fell to the slowest since March 2021. Companies pointed to cost-cutting efforts due to reduced output.

At the same time, the backlog decreased for the second consecutive month and at a faster rate.

Expectations about next year’s output remained broadly upbeat in June, but confidence fell below the historical average of the survey and was the lowest in about two years.

Sentiment was weighed down by concerns about the impact of inflation on consumer spending. Weak demand from customers led to a further reduction in input purchases by Greek manufacturers.

Some companies reported efforts to destock purchases, resulting in a drawdown of existing input stocks.

The decline in supplies was broadly sharp as inventories of finished goods also fell sharply due to the sales made from them.

Commenting on the results of the latest survey, Siân Jones, economist at S&P Global, said:

“The impact of inflation on customer spending was felt more by Greek manufacturers during June as output and new orders fell for the first time since March 2021.

Demand from domestic and overseas customers shrank as there were reports of customers postponing or canceling orders.

Although inflationary pressures remained relatively strong, the pace of growth in selling prices and input costs weakened, despite continued reports of increases in energy, fuel and material prices.

“Manufacturer confidence fell significantly compared to May as concerns about the further impact of price increases on demand conditions weighed on sentiment.”