BCR Romania Manufacturing PMI bounced back in March and the index climbed to 49.3 from 47.1 in February, reaching its strongest reading so far, though it remained below the 50.0 threshold which indicates contraction vs the previous month. New orders component was the main driver of the rebound, followed by output, both posting the highest readings on record but a decline versus the previous month, nonetheless. The Romanian Manufacturing PMI has remained in contractionary territory since the start of the data collection in July 2023.
NIS data regarding industrial output show a -2.0% contraction of Romanian manufacturing in 2023 vs 2022 and the preliminary figure for Jan-24 shows a -3.5% decline in manufacturing vs the previous month. The is roughly in line with the PMI reading which also shows a contraction in monthly terms. It will be interesting to see how much the NIS figure will be revised and in what direction. The Manufacturing PMI remained in contractionary territory in the first quarter of the year but improved vs the previous quarter, on average. This might be some early signs of bottoming out in the manufacturing sector, but it is too early to call it and we should wait for more data.
Export orders continue to drag the Romanian manufacturing sector with export orders significantly below the 50.0 no-change mark, though posting the lowest monthly contraction. This is in line with the weak flash HCOB Germany Manufacturing PMI March release. The other components had a positive directional contribution except for employment. With exports accounting for about 43% of the manufacturing production in Romania, a meaningful recovery is unlikely unless we see a sustained improvement in external demand. Nevertheless, the managers in the sector are rather optimistic about production over the next 12 months with the Future Output Index improving in March and remaining above the historical average. Growth outlook, investments and product diversification are cited as sources for better prospects. It is yet to be seen if these would lead to improved competitiveness, which can offset the recent fast wage hikes, or further investments in automation and job shedding would be the solutions to compensate for higher labour costs.
Despite reports of higher taxes and fuel costs, input price inflation slowed marginally in March from the all-time high in February. The increase in input prices was mostly accommodated by shrinking profit margins as the output price inflation decelerated to a larger extent.
*This report is provided by BCR Research.
