Euro zone manufacturing ends 2020 on high as German factories hum -PMIs

LONDON (Reuters) - Manufacturers in the euro zone ended 2020 on a high, with activity in the sector increasing at its fastest pace since mid-2018, suggesting the bloc’s economy was less hard hit by the pandemic than earlier in the year, a survey showed.

Germany was again the driving force and in contrast to the bloc’s dominant service industry - which has been particularly badly impacted by lockdown measures to tackle the coronavirus - factories in the region have mostly remained open.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) rose to 55.2 in December from November’s 53.8, although that was below the initial 55.5 “flash” estimate.

Anything above 50 indicates growth, and December was the highest reading since May 2018. An index measuring output, and which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic health, rose to 56.3 from 55.3.

“The economy consequently looks set to be hit by the pandemic in the fourth quarter far less than the unprecedented decline in the second quarter thanks to the resilience of manufacturing,” said Chris Williamson, chief business economist at IHS Markit.

Although the euro zone economy likely contracted again last quarter as renewed lockdown measures stifled activity, a December Reuters poll suggested the bloc’s GDP will return to pre-crisis levels within two years. [ECILT/EU]

New orders increased amid strong demand for German goods and in part reflecting a temporary spike in British demand prior to the end of the Brexit transition period.

But despite strong demand and factories building up a backlog of orders at one of the sharpest paces in nearly three years, headcount was reduced again last month, albeit at a slower pace. The employment index nudged up to 49.2 from 48.7.

“Employment continued to be cut, but this follows a similar pattern to the recovery from the global financial crisis, with the job market improvement coming later than the rise in production,” Williamson said.

“Assuming output growth can be sustained, jobs should soon follow.”