New orders, delivery backlogs high but sentiment sliding in Europe

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Macroeconomics

Buyers sourcing product from Europe know that the manufacturing sector there has faced unprecedented levels of disruption and cost increases.

The fact that European producers are facing major constraints to production, to supply chains and raising costs that are being passed along the supply chain is probably a widespread experience for U.S. consumers.

But hopes that the situation would ease after the initial pandemic bounce-back are looking increasingly forlorn.

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European manufacturing sector struggles

E.U. flag

Andrey Kuzmin/Adobe Stack

According to IHS Markit, the European manufacturing sector reported a 13th successive month of output growth in June. However, the rate of expansion slipped to its lowest since February.

In many cases, notably in Germany, shortages of inputs constrained output. Supplier delivery times continued to lengthen at one of the sharpest rates ever recorded by the eurozone PMI survey.

Not surprisingly, in such a constrained market supply chain delays have pushed up costs. Those have then fed through into another near-record increase in average selling prices for goods and services.

Business sentiment is sliding, the IHS report states. As the more transmissible Delta variant of the virus spreads through European populations, it raises fears of partial lockdowns. Rising case numbers have reversed earlier positive sentiment to the lowest level since February, even as the same issue overseas continues to cause supply chain disruption and push up prices further.

 

As the IHS report notes, there has been a slide in expectations even as new orders and backlogs – usually very positive signs – extend. Sentiment may not be positive but prices and disruption look like they will be the foremost features of trade with Europe for the balance of this year, even as domestic European demand looks at risk of an autumn wave.

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