Euro zone manufacturing activity concludes the first quarter positively, with a reduction in cost pressures, according to PMI.

Eurozone manufacturing output concluded its strongest quarter since early 2022 last month, with diminishing cost pressures. This improvement came as the U.S. and Iran engaged in ceasefire talks, providing some relief to factories, despite weak export demand impacting growth, according to an S&P Global survey released on Wednesday.

The ongoing conflict in the Middle East continued to affect supply chains, though there were positive signs as the supplier delivery times subindex for the manufacturing sector reached a three-month high. To manage supplier disruptions, manufacturers relied heavily on pre-purchased materials, leading to a significant decline in pre-production inventories.

The S&P Global Eurozone Manufacturing PMI fell to a four-month low of 51.4 in June, down from 51.6 in May, yet it remained above the 50.0 mark that indicates growth versus contraction for the fifth consecutive month. This figure slightly exceeded a preliminary estimate of 51.3.

S&P Global indicated that most responses for the survey were gathered prior to the June 17 signing of a ceasefire memorandum between the U.S. and Iran, suggesting that the complete effects on supply chains and energy costs had not yet been reflected in the data.

Chris Williamson, chief business economist at S&P Global Market Intelligence, remarked, “The increase in manufacturing output in June signifies continued resilience in the eurozone economy.” He added that June's expansion marked the strongest quarter for eurozone manufacturing since early 2022, which would help offset the recent downturn observed in the services sector.

However, the potential for improved near-term performance in the manufacturing sector due to developments in the Middle East was uncertain. On one side, lower energy prices and better supply conditions are beneficial, reducing company costs and easing potential supply disruptions while boosting consumer demand through lower inflation. Conversely, producers have recently gained from precautionary stockpiling, which is starting to wane and may hinder growth in the months ahead.

S&P Global reiterated that most survey responses were gathered before the ceasefire memorandum between the U.S. and Iran on June 17, indicating that the full impact on supply chains and energy costs is still not reflected in the data.

This sustained growth was paired with a notable decline in cost pressures, primarily due to the sharp decrease in oil prices during the month and a reduction in supply concerns.

A Reuters poll early in June predicted a 0.1% economic expansion for this quarter.

New orders saw a modest increase last month following stagnation in May, though the growth was marginal. Export orders continued to exert a slight negative influence.

The output sub-index rose to a two-month high of 51.7 in June from 51.3. Spain and France were the only countries recorded as experiencing declines in the survey.

Factory employment continued to decline, although the pace of job losses slowed.

In terms of prices, while input cost inflation remained high, it decreased to its lowest level since March, ending a series of rising pressures that had persisted since September. Inflation for output charges also diminished, reaching a three-month low and providing some relief for buyers.

The European Central Bank raised interest rates in June, prompted by a surge in energy costs linked to the war that pushed inflation above 3%, significantly over its 2% target. Business confidence climbed to a four-month high in June, recovering from a 17-month low in April, though it remained slightly below its long-term historical average.