Although the headline BCR PMI® indicated no change in the health of the Romanian manufacturing economy, more detailed data provided additional insights into operating conditions. Overall, demand for Romanian manufactured goods increased, albeit modestly, and delivery times lengthened, indicating capacity pressure on suppliers.
Meanwhile, output levels declined for the first time in three months, and employment also decreased. To protect cash flow, firms reduced purchasing quantities and subsequently lowered stocks to cut warehousing costs. The latest data also showed a sharper rise in input costs.
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 the 50.0 no-change mark signals an improvement in the sector’s health over the month, while a figure below 50.0 indicates a deterioration.
In June, the headline PMI index dropped from 52.0 in May to 50.0, indicating no change in overall operating conditions in the Romanian manufacturing sector at the end of the quarter. This outcome was due to mixed trends across the five PMI components.
New orders continued to grow in June, driven by new client wins and improved demand conditions. However, the rate of increase was modest and softer than in May. New export orders, however, fell again at an accelerated pace in June, suggesting that domestic demand is sustaining total orders.
At the same time, Romanian manufacturers reported a renewed decrease in production volumes in June, following a brief two-month period of expansion. Increasing cost pressures and softer new orders were among the factors cited in anecdotal evidence.
June survey data highlighted elevated input price inflation, reflecting greater utility, raw material and energy costs. In fact, the proportion of manufacturers registering cost hikes outweighed those experiencing a decline by about four-fold. Despite growing cost pressure, output charges were raised only marginally and at a rate largely consistent with May.
Firms protected cash flow by reducing input purchases and their stock of purchases, both of which were cut to align with lower production needs. Additionally, purchase quantities decreased in June after a single month of growth.
Workforce levels at Romanian factories also fell at the end of the quarter. According to some panelists, this decrease reflected muted order book volumes. Consequently, there was no change in the level of work outstanding in June, whereas in the previous 11 months, firms had spare capacity to reduce backlogs.
Vendor performance deteriorated again in June, extending the trend of lengthening delivery times to a full year. Although supplier performance declined solidly, it was the least pronounced deterioration in four months.
Finally, the reduction in factory headcounts corresponded with less optimistic expectations for output over the coming 12 months. However, over half of the survey respondents (52%) remained optimistic, compared to only 9% who were pessimistic about the future. Confidence was supported by plans for increased marketing and advertising, hiring new workers, and positive predictions for new customers and demand.
Ciprian Dascalu, Chief Economist at BCR said: “Activity in the Romanian manufacturing sector stagnated in June compared to the previous month, with BCR Romania Manufacturing PMI reading at the 50.0 neutral mark, after two consecutive months of expansion. Even though there are signs of recovery for Romanian manufacturing, there are still factors, most of them external, limiting the pace and consistency of economic activity growth. The output component came in below the 50.0 mark, showing a contraction in monthly terms. However, new orders
remained above the 50.0 mark, suggesting still solid demand which should be positive for future production readings. Employment, output, and stocks of purchases had a negative contribution for this month’s PMI print, while the positive contribution from new orders and
suppliers’ delivery times leveled it off. Strictly directionally, all five components posted lower values vs the previous month and pushed the headline PMI downwards. The HCOB Manufacturing PMI flash release for the German economy, which is the main trading partner for Romanian manufacturing sector, came in lower in June vs May, contrary to Bloomberg survey median which was expecting
an improvement”.
“Output was reported lower this month compared with the previous one. Softening of new orders and higher input costs were reasons cited by panel members for this evolution. New orders increased for the third consecutive month in June, though at a slower pace. An improved demand environment and an influx of new customers were mentioned in support of this reading, which is a good sign overall for the manufacturing sector prospects. New export orders posted yet another contraction in June vs the previous month, showing that external demand remains unfavourable for any meaningful momentum gain of Romanian manufacturing output. On a more positive note, the Future Output Index remained well above the 50.0 threshold in June, showing that survey respondents remained optimistic regarding business developments over the next 12 months. The bottom line is that Romanian manufacturing will probably post a positive growth rate in 2024 after ending 2023 in the red,” he added.
According to the BCR chief economist, employment dropped below 50.0 in June after two consecutive months of growth and this shows that the number of employees in the manufacturing sector decreased in June, however the rate of decline was modest overall looking at the historical series. Lower new orders were reported as the reason behind the decline.
“Suppliers’ delivery times were higher this month, with the index remaining below 50.0 in June. Some panellists blamed technical issues, while others noted that firms were ordering smaller amounts more frequently to keep down inventories which in turn increased pressure on suppliers.
Stocks of purchases declined in June as has been the case over the past 12 months. The evolution was attributed to a decline in production requirements. The evolution of these two components seems to be highly linked with the output of the respective month as it seems that Romanian manufacturing factories choose to not front-load orders for materials, perhaps due to limited storage capacity or maybe due to still elevated degree of uncertainty in the current geopolitical landscape which requires more cautious spending habits.
“Input prices were up again in June due to higher raw material prices and higher utility and energy costs. Output prices rose by a lesser extent, indicating that the burden of higher input prices was not fully transmitted towards the customers and are eroding the profit margins
of the manufacturing companies. Output prices in the manufacturing sector are closely linked to the consumer prices, though the effects are usually seen with some lags.
“The BCR Romania Manufacturing PMI correctly captured the negative contribution of industrial sector to the GDP growth in Q1 2024. Industry had a -0.2pp contribution to the +0.1% y/y GDP growth in the first quarter of 2024. PMI data for the second quarter points to a positive contribution from industry to the overall domestic output as the average index stood in expansionary territory, at 51.2. Manufacturing
accounts for around 15% to 20% of the gross value added in Romania. The Romanian economy is expected to accelerate in 2024 vs 2023 driven by stronger domestic demand, which should support the manufacturing sector as well.”
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