Weak euro spurs manufacturing in Spain, Italy; There is downside, though - Markit
Purchasing Managers Index for Italy, the euro area’s third-largest economy, rose to 54.8 from 53.8 in April, the highest since 2011. In Spain, the index jumped to 55.8 from 54.2, Markit Economics said. Both countries exceeded the median economist estimate, Bloomberg reported.
European Central Bank QE program is lowering the euro, which has plunged 20 percent against the dollar in the past year, which also spurs export competitiveness.
However, Markit’s report showed it also has a downside. "The threat of rising costs, caused mainly by the euro’s depreciation, is now back on the radar,” said Phil Smith, an economist at Markit.
Input costs at factories across the region are rising by the most in three years, while selling prices are stagnating, squeezing companies’ margins.
Markit’s factory PMI for the entire 19-nation euro region rose to 52.2 in May from 52 in April. While that’s above the key 50 mark that divides expansion from contraction, it’s below the initially reported reading of 52.3.
The euro fell 0.6 percent to $1.0920 as of 11:05 a.m. London time. The German 10-year bond yield was little changed at 0.49 percent.
According to Chris Williamson, chief economist at Markit in London, the euro zone PMI signals the quarterly pace of industrial growth is about 0.5 percent. That should help the broader economy match the 0.4 percent expansion it achieved in the first quarter of 2015.
“Growth is modest rather than spectacular,” he Williamson. “Weakness is centered in the region’s core, with France’s manufacturing sector still in decline and Germany only seeing very meager growth. On the other hand, Spain and Italy appear to be staging strong recoveries.”
In Spain, output and new orders grew at the quickest pace since 2007 as new export business grew the most in 15 years. Production and new order growth in Italy was the fastest in over four years, with a significant part of Italy's improvements being due to the revival in exports.
