Factory orders in the north surge while manufacturing output in Greece contracted and Spain faced slowdown, study shows
Manufacturing output in the eurozone powered ahead last month but fuelled concerns that a two-speed recovery will leave faltering southern European countries far behind.
Output in Germany, France and the Netherlands soared in April, according to analysts Markit, to register the second fastest monthly jump since 2000.
Northern European countries dragged up the average after capitalising on a surge in orders from the far east. Recent company results, lead by Mercedes last week, show China spurring a huge rise in demand from European factories for cars and other manufactured goods.
Job creation also increased in northern Europe, with Ireland for the first time joining the job recovery in the manufacturing sector.
However, a slowdown in orders and rising input prices threaten growth over the rest of the year, said Markit in its monthly report.
"The euro area purchasing managers' index (PMI) was boosted by output and new orders both rising slightly faster than indicated by the flash estimates," Markit said. "An acceleration in the rate of increase of output – to one of the fastest seen during the past 10 years – contrasted, however, with a slight easing in growth of new orders.
"Although still strong by historical standards, orders rose at the weakest pace since November, suggesting that production growth may slow in coming months. A further strong increase in new export orders was also seen, though down on the flash reading."
Also, manufacturing output in Greece contracted and a dramatic slowdown in Spain threatened to widen a growing divide between the recovering northern European economies and the south. Output in Italy ground to a halt, it said.
In March the outspoken minister of the economy in Catalonia, Andreu Mas-Colell, said Spain's recovery was vulnerable to rate rises by the European Central Bank and a persistently highly valued euro.
Since his comments, the ECB raised rates by 0.25 percentage points and the euro has climbed in value. The ECB meets this week to decide on a further rate rise, and though most analysts expect a freeze, a rise in inflation to 2.8% in March is expected to spur another rise in the near future. Chris Williamson, chief economist at Markit, said growth over the first four months was the best opening to a year since 2000, while April registered the third-highest rate of job creation over the past decade.
Markit's PMI for manufacturing rose to 58.0, up from 57.5 in March and above the flash estimate of 57.7. The April reading was also marginally above the first quarter average of 57.9.
Economists are hopeful a rise in employment will filter through to improved consumer confidence and spending in coming months.
But Williamson warned that a near-record increase in manufacturers' selling prices was likely to fuel inflationary concerns among policymakers, along with the growing divergence between the performances of the region's core and periphery.
He said: "The slide towards stagnation in Spain is particularly worrying, as slow growth will add to worries about the government's budget deficit reduction plan."
Howard Archer, chief economist at HIS Global Insight, said the survey boosts hopes that eurozone economic activity will hold up well in the second quarter after GDP growth appeared to pick up in the first quarter.
However, a divergence in growth patterns between north and south, rising input prices and the prospect of public spending cuts across the region means the euphoria could be shortlived. He said: "While the Eurozone manufacturing sector currently looks in good shape, the concern is that producers will find life becoming more challenging over the coming months. Inventory corrections may well be generally drawing to a close across the region, while domestic demand is likely to be increasingly limited in a number of Eurozone countries by tighter fiscal policy increasingly kicking. In addition, surging input costs are an increasing threat to activity either by substantially squeezing companies' margins or by leading them to raise prices and face possibly losing business."