Spain, Italy Manufacturing Strengthen on Weak Euro Boost

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Manufacturing in Spain and Italy grew more than economists forecast last month as the weaker euro helped to boost export competitiveness.

Markit Economics said its Purchasing Managers Index for Italy, the euro area’s third-largest economy, rose to 54.8 from 53.8 in April, the highest since 2011, while the Spanish measure jumped to 55.8 from 54.2. Both countries exceeded the median economist estimate.

European Central Bank stimulus is helping to lower the euro, which has plunged 20 percent against the dollar in the past year. While that’s helping export competitiveness, Markit’s report showed it also has a downside. Input costs at factories across the region are rising by the most in three years, while selling prices are stagnating, squeezing companies’ margins.

Markit’s factory PMI for the entire 19-nation euro region rose to 52.2 in May from 52 in April. While that’s above the key 50 mark that divides expansion from contraction, it’s below the initially reported reading of 52.3.

In Germany, the index fell more than initially reported, dropping to 51.1 from 52.1. France’s remained below 50.

The euro fell 0.6 percent to $1.0920 as of 11:05 a.m. London time. The German 10-year bond yield was little changed at 0.49 percent.

‘Modest’ Growth

The euro-area PMI points to a quarterly pace of industrial growth of about 0.5 percent, according to Chris Williamson, chief economist at Markit in London. He said that should help the broader economy match the 0.4 percent expansion it achieved in the first three months of the year.

“Growth is modest rather than spectacular,” he said. “Weakness is centered in the region’s core, with France’s manufacturing sector still in decline and Germany only seeing very meager growth. On the other hand, Spain and Italy appear to be staging strong recoveries.”

In Spain, output and new orders rose at the quickest pace since 2007 as new export business jumped the most in 15 years. Production and new order growth in Italy was the fastest in over four years.

Markit said a large part of Italy’s recent improvement has been the revival in exports. “However, the threat of rising costs, caused mainly by the euro’s depreciation, is now back on the radar,” said Phil Smith, an economist at Markit.

Markit will publish its final services PMI on Wednesday, along with its manufacturing and services composite. The initial reading last month showed services slipped to 53.3 in May from 54.1 in April. The combined gauge declined to 53.4 from 53.9.

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