Euro zone factory orders stabilise for first time in 3 years, PMI shows

LONDON (Reuters) -Euro zone manufacturing activity showed further signs of recovery in June as new orders stopped falling for the first time in more than three years, suggesting a tentative stabilisation in the bloc's struggling factory sector, a survey showed.

The HCOB Manufacturing Purchasing Managers' Index, compiled by S&P Global, edged up to 49.5 in June from 49.4 in May, its highest level since August 2022, but remaining below the 50 mark for the 29th consecutive month. A preliminary estimate came in at 49.4.

PMI readings above 50 indicate growth in activity while those below point to a contraction.

"There are signs of some stabilisation in the manufacturing sector. Companies have now expanded production slightly for the fourth month in a row, order intake has ceased to fall, and slightly longer delivery times also indicate that demand is picking up a bit," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The manufacturing output index, however, declined to 50.8 from 51.5 in May, marking a three-month low but remaining in expansion territory.

A sub-index measuring new orders nudged up to 50.0, ending a 37-month period of decline, and export orders stopped falling for the first time since March 2022, a positive sign for future production.

Despite the improvement in order books, manufacturers continued to reduce their workforces. The employment index has been sub-50 for two years.

The survey revealed stark differences across the euro zone. Ireland recorded the highest PMI at 53.7, a 37-month high, while Greece, Spain, and the Netherlands also posted readings above 50. Meanwhile, Germany's manufacturing PMI reached 49.0, its highest in nearly three years though still indicating contraction.

France, Italy and Austria registered faster declines in manufacturing sector conditions, weighing on the bloc's overall performance.

"If Germany enters the growth zone, which we believe is likely given the new government's growth package, among other things, these countries could receive a positive boost, as Germany is their most important export destination," de la Rubia added.

Business confidence continued to improve, reaching its highest level since February 2022, with German manufacturers particularly optimistic about future production prospects.

Purchasing costs decreased for the third consecutive month, contributing to another slight reduction in factory gate prices.

The European Central Bank is expected to conclude a year-long interest rate-cutting campaign with one more move in September, according to a slight majority of economists in a Reuters poll published last week who in May were at odds over where rates would end the year.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)