According to the report from IHS Markit, euro area manufacturers recorded another strong improvement in operating conditions during September, owing to further marked rates of expansion in output, new orders and employment. That said, notable slowdowns were seen in all three cases, causing the headline PMI to fall by its largest margin since April 2020, right at the start of the COVID-19 pandemic when virus containment measures were being implemented across the currency bloc and globally.

The final reading of the Eurozone Manufacturing PMI for September of 58.6 was a fraction below the preliminary ‘flash’ print of 58.7, but a notable step down from 61.4 seen in August and the lowest since February. 

The drop in the Manufacturing PMI was driven by the index’s two principal components, new orders and output, which signalled considerable moderations in growth when compared with August. In both cases, the expansions were still strong, but the weakest for eight months. Meanwhile, following on from the sharp rates of increase seen in previous months, new export orders grew at the slowest rate since January. Supply constraints were a key hindrance to production schedules during September, while softer demand conditions were another contributing factor.

Inflationary pressures remained acute during September. Although the rate of input price inflation was the weakest in five months, it was still above anything seen in almost 24 years of data prior to this. To protect profit margins, euro area manufacturers lifted their output prices, and to a quicker extent than seen in August.

Lastly, business confidence fractionally ticked higher during September, marking the first time since June that the level of positive sentiment has increased. That said, the degree of optimism held close to August’s nine-month low.