The Romanian manufacturing sector’s performance improved further and to a greatest extent on record (since July 2023) in May, according to the latest BCR PMI® data. Output and new orders signalled faster upturns as demand conditions strengthened. In turn, companies stepped up their input buying and engaged in another month of job creation, albeit one that was only fractional amid staff shortages. Supplier delays remained, however, with lead times lengthening sharply.
Meanwhile, input costs rose at a faster pace as inflation regained momentum, prompting firms to increase their selling prices more rapidly.
The headline BCR Romania Manufacturing PMI® is a composite single-figure indicator of manufacturing performance, derived from new orders, output, employment, suppliers’ delivery times, and stocks of purchases.
A PMI reading above 50.0 signals an improvement in the sector’s health over the month, while a reading below 50.0 indicates deterioration. In May, the headline figure rose to 52.0 from April’s 51.5, the highest since data collection began in July 2023, indicating a modest upturn in the sector’s health.
Romanian manufacturers saw output levels increase for the second consecutive month in May, driven by a rise in new orders, resulting in a solid growth rate—the fastest in nearly a year of data collection.
Stronger demand conditions led to a sharper rise in new sales for Romanian goods producers in May. The solid increase in new orders was the quickest on record, as customer referrals brought new client wins.
However, external demand conditions were less favorable, with a subdued sales environment in key export markets causing a further drop in new export orders. Despite this, the rate of decline eased to the weakest in the 11-month series history.
At the same time, increased demand for inputs, following the first recorded rise in purchasing activity, along with the re-routing of shipments from Asia due to Red Sea disruptions and supplier capacity issues, led to a significant lengthening of suppliers’ delivery times in May. The extent of these delays was the greatest since data collection for the series began.
As a result, Romanian manufacturers experienced only a slight decrease in inventory levels, as firms aimed to build safety stocks of inputs.
May data indicated a faster rise in input costs for Romanian manufacturing firms. The pace of inflation accelerated compared to April and was quicker than the series average. The increased cost burdens were attributed to higher prices for suppliers, transportation, and fuel.
Romanian goods producers continued to raise their selling prices in May, marking the seventh consecutive month of price inflation. Although the increase was marginal, it was the fastest in three months as firms aimed to pass on costs and adjust for product quality improvements.
Workforce numbers at Romanian manufacturers rose for the second consecutive month in mid-Q2. However, difficulties in finding suitable replacements for voluntary leavers hindered job creation, resulting in only a fractional overall increase.
Delays in input deliveries and reports of staff shortages led to only a slight decrease in backlogs of work during May. The rate of backlog reduction was the slowest since last September.
Finally, output expectations among Romanian manufacturing firms improved in May. Confidence reached the highest level on record (since July 2023) due to hopes of new client acquisitions and planned investments in new technology.
Ciprian Dascalu, Chief Economist at BCR said: “The BCR Romania Manufacturing PMI remained above 50 in May and posted yet another record reading at 52.0, from 51.5 in the previous month. May figure represents the highest reading since the beginning of data collection in July 2023. Managers in the Romanian manufacturing sector reported an improvement in business activity in May for the second consecutive month, showing clear signs of recovery in the Romanian manufacturing sector. New orders and output remained above 50 and were the main drivers for this month’s reading. Employment remained in expansionary territory but had a negative directional contribution this month, as
the reading came in below previous month. The only other negative directional contribution in May came from stocks of purchases, though holding a small weight, the effect on the headline PMI is only marginal. The HCOB Flash Manufacturing PMI Output Index for the German economy, the main trading partner for the Romanian manufacturing sector, showed some improvement in May reaching a 13-month high, but remained below the 50 neutral level.”
“Output index came in above 50 for the second month in a row, with the growth rate higher than the previous month. This is linked to stronger demand conditions and higher new orders, according to the responses from the panellists. New orders were also on the rise in May, with client referrals, new customers wins, and improved sales environment reported as the reasons behind it. On the other hand, export orders remained in contractionary territory, albeit at a slower pace, showing that external demand remains weak, especially in Europe and remains a drag for the Romanian manufacturing sector. Historically speaking, a significant portion of the manufacturing output in Romania is destined for export markets, therefore the external demand evolution will most likely be detrimental for any meaningful acceleration of the manufacturing growth rate in the months ahead. Regarding business expectations the survey contributors remained optimistic regarding future business prospects in May, with strengthening demand conditions, new customers acquisitions and investments in new technologies cited as factors of optimism. This can only be interpreted as a positive sign for the months ahead,” Dascalu added.
In the chief economist’s view, the employment component of the PMI index remained above 50 for the second consecutive month, however, the pace of improvement was only marginal, and some challenges were reported in replacing voluntary leavers. “This phenomenon is not new for the Romanian labour market, and it transcends the manufacturing sector. The number of job vacancies remains above the number of persons actively seeking jobs in Romania indicating a tight labour market. Furthermore, there is also a problem regarding finding workers with the right skills for the job. Even if some problems in replacing voluntary leavers were reported, backlogs of work declined in May, indicating that the current capacity is sufficient to process incoming work, though some companies noted staff shortages and supplier delivery delays as problems for completing current orders”, he explained.
“Quantity of purchases was up in May, showing an uptick in input buying, which is linked with the rise in new orders. Suppliers’ delivery times worsened in May to the strongest degree recorded so far with supplier capacity shortages, re-routing of shipments from Asia due to the Red Sea disruptions cited as main reasons behind this development. The geopolitically linked disruptions most likely will continue to have a negative effect on inputs supply in the coming months.
Input prices were up in May, as higher transportation, fuels and supplier prices reportedly drove an uptick in operating expenses. Output prices rose by a lesser extend indicating that the burden of higher input prices was not fully transmitted towards the consumer. Output prices in
the manufacturing sector are closely linked to the consumer prices, though the effects are usually seen with some lags. Some inflationary pressure might come from manufacturing sector producer prices toward the consumer prices based on the PMI data so far.
Based on PMI data for the first quarter, we can assume that the manufacturing sector will not be a contributing factor for the economic growth in the first three months of the year, as the average index stands below 50. Second quarter, however, might show a positive contribution, as PMI data for the first two months of the quarter suggests. Manufacturing accounts for around 15% to 20% of the gross value added in Romania,” Dascalu concluded.
The post BCR PMI: May Sees Record Improvement in Romania’s Manufacturing Performance appeared first on The Romania Journal.
