By Daniel Hunter

At 47.9 in February, up slightly from a flash reading of 47.8, the seasonally adjusted Markit Final Eurozone Manufacturing PMI was unchanged from January’s 11-month high.

The headline PMI signalled a deterioration in business conditions for the nineteenth successive month, but the rate of contraction remained one of the weakest seen during the past year.

Ireland remained at the top of the PMI league table in February, registering above the 50.0 mark for the twelfth month running. Germany also reported a slight rate of expansion, halting an 11-month sequence of decline. Downturns remained marked in Italy, France, Spain and Greece, with France and Greece occupying the bottom two positions in the PMI league table. The contractions signalled by the Netherlands and Austria PMIs were only modest.

Manufacturing production and new orders continued to contract during the latest survey period, although the rates of decline were less marked than signalled by the earlier flash estimates.

Output fell for the twelfth consecutive month in February, with the rate of contraction accelerating from January’s 10-month low. Ireland, Germany and Netherlands were the only nations to signal expansion. In contrast, France and Greece recorded the sharpest rates of decline, and remained well adrift of the other nations.

Total new orders at Eurozone manufacturers contracted at the slowest pace since June 2011, as a solid improvement in external demand failed to fully offset the ongoing weakness of domestic markets. Germany was a bright spot, with growth of total new orders hitting a 21-month high and supported by a solid upswing in new export business (the sharpest since May 2011).

Italy, Spain and the Netherlands also reported modest increases in new export business. Although French manufacturers reported a further decline in new exports, the rate of decline nonetheless eased to a six-month low.

Eurozone manufacturers maintained, on balance, a cost-cautious approach in February. Employment fell for the thirteenth successive month, albeit at a slightly weaker pace than in the prior month. Companies also reported a preference of lower inventory holdings, leading to reduced levels of both pre- and post-production stocks. Purchasing activity was cut further.

Job cuts were reported in all nations bar Ireland. Germany saw a marked easing in its rate of loss and Austria also saw only a modest decline in payroll numbers. The other nations all reported solid reductions. Signs of excess capacity remained present in the Eurozone manufacturing sector, however, as highlighted by a further reduction in backlogs of work.

Price pressures remained muted during February. Average input costs declined for the first time in six months, while factory gate prices were broadly unchanged. The decline in average costs mainly reflected a steep reduction in Germany, with Austria the only other nation to report a decline. Supply- chain pressures also showed signs of easing, as average vendor delivery times lengthened only slightly and to the weakest extent in three months.

Looking forward, the new orders-finished goods inventory ratio — which often moves in advance of the trend in production — rose for the second month running to reach a 20-month high. Ratios rose in almost all of the nations covered by the survey, the sole exception being Italy.

“The PMI held steady in February, but some consolation can be gained from the fact that January’s reading was the highest for 11 months, suggesting that the manufacturing downturn has eased so far this year compared to the pace of decline seen throughout much of last year," Chris Williamson, Chief Economist at Markit said.

“Furthermore, with new orders falling at the slowest rate since June 2011, a further easing in the overall rate of decline is likely in March.

“While the manufacturing sector is likely to have again acted as a drag on the overall economy in the first quarter, causing GDP to fall for a fourth consecutive quarter, there are signs that the downturn has become less severe.

“The concern is that manufacturing trends are diverging strongly within the eurozone. German producers reported the first overall improvement in business conditions for a year, contrasting with steep downturns in France, Spain and Italy.

“The combination of a revival in export orders and resilient domestic demand has helped propel Germany’s growth so far this year, while deteriorating domestic demand is holding back the economies of France, Italy and Spain."

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