Page 10 - bne_newspaper_June_02_2017

Central Europe
June 2, 2017 www.intellinews.com I Page 10
Central Europe PMI readings hint manufacturing’s early year surge is fading
bne IntelliNews
Central European purchasing managers’ indi- ces (PMI), released on June 1, offered another hint that the surprise surge in manufacturing in the first quarter of the year faded in May.
PMI readings out of the region have been elevated for some months, driven by strong demand out
of the Eurozone and expectations of a rebound in investment. Analysts have been waiting for indus- trial output to catch up, but it now appears that the forward-looking data will be the one to close the gap as output slows.
Boosted by robust activity and confidence in the Eurozone, which provides the bulk of demand
for the small and open Visegrad economies,
PMI readings have been pushing high above the 50-point threshold that separates contraction from expansion this year. The performance of exports helped drive economic growth in January- March that surprised as it surged above expecta- tions, particularly in Poland.
However, there are signs that the momentum won’t last, with sectoral numbers and confidence indicators dropping in April. The added sugges- tion from May’s PMI readings that manufacturing growth is slowing will not buoy the mood.
That, again, is at odds with continued strong data from Eurozone manufacturing. The single-curren- cy area’s PMI rose 0.3 points to a 73-month high of 57.0 in May. The gain of the German reading
to a similar high of 59.5 should be good news in Visegrad, whose factories play a large role in the German supply chain.
However, Central Europe’s manufacturing outlook headed in the other direction in the fifth month of the year, even if the numbers still suggest decent expansion.
The Czech PMI – often invoked as the bellwether for the region – dropped 1.1 points to 56.4. While strong in an historical context, and driven by impressive expan- sion in new orders, the reading suggests the slowest growth in Czech manufacturing since January.
New export orders rose at the second-fastest rate since January 2015, with respondents crediting higher demand from the likes of Germany. But there are hints that structural imbalances – the growing labour shortage in particular – are start- ing to have an impact. Both supplier delivery times and work backlogs deteriorated in May.
“Labour shortages and supply constraints were highlighted in anecdotal evidence as weighing heavily on growth potential,” noted Sian Jones, an economist at compiler IHS Markit.
The fall in Poland’s PMI was even deeper as the reading fell 1.4 points to 52.7 in May. While the re- sult remains above the historical average of 50.5, it also indicates the slowest growth in the manu- facturing sector for six months.
The reading corresponds to weaker data on indus- trial production in April, when output surprised
on the downside. Analysts were quick to attribute the fall to the calendar effect, but still the surprise was there, as consensus expectations were for ex- pansion of over 2%.