Euro zone factory downturn eased in May, PMI shows

LONDON (Reuters) - The downturn in euro zone manufacturing eased further in May, coming close to stabilisation as production increased for the third consecutive month and supported by a near-stabilisation in demand, a survey showed on Monday.

The HCOB Eurozone Manufacturing Purchasing Managers' Index rose to 49.4 in May from 49.0 in April, marking a 33-month high and in line with a preliminary estimate but remaining below the 50.0 threshold separating growth from contraction.

"The upward trend in the headline PMI is still continuing, pointing towards a recovery that is progressing," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Manufacturing output increased for the third straight month, with the output index holding steady at 51.5, its joint-highest level since March 2022. New orders approached stabilisation after nearly two years of contraction, while export orders reached a 38-month high.

Companies scaled back job cuts with employment declining at the shallowest rate since September 2023 while purchasing activity shrank at its slowest pace in almost three years.

Among the region's economies, Greece topped the rankings with its PMI at 53.2, unchanged from April, while Spain returned to expansion with a reading of 50.5. France approached stabilisation at 49.8, a 28-month high.

"Production has picked up across all four major euro zone economies which really highlights how broad-based this recovery is," de la Rubia added.

Germany remained the weakest performer among the major economies with a PMI of 48.3, though its manufacturing sector recorded one of the softest deteriorations in three years.

Manufacturers' confidence about the year ahead rebounded to its highest level since February 2022 despite concerns about potential U.S. tariff increases on European imports. The future output index bounced to 61.6 from 58.0.

Input costs declined for the second consecutive month with the reduction accelerating to the fastest pace in 14 months. In response, factories cut their selling prices for the first time since February.

"The ECB is getting some tailwinds for its expected interest rate cuts. The industrial sector has started cutting its sales prices again after two months of increases, giving the central bank some extra room to move forward with its interest rate cuts," de la Rubia said.

All 81 economists polled by Reuters expected the ECB to cut its deposit rate again on Thursday with a majority predicting at least one more cut after June.

(Reporting by Jonathan Cable; Editing by Toby Chopra)