The increase brings the average for Q2 to 49.2 index points, slightly below the average of 49.9 recorded in Q1.
This suggests that the manufacturing sector remained under pressure and that a solid recovery in quarterly manufacturing output growth is unlikely, said Lisette IJssel de Schepper of the Bureau for Economic Research (BER), compiler of the report.
June’s increase was driven by improvements in the business activity, inventories and employment indices. On the downside, suppliers’ performances and new sales orders dipped compared with May.
Encouragingly, the business activity index rose above the neutral 50-point mark for the first time since January. The index rose to 51.7 from 49.6 in May.
In line with the improvement in output, the employment index rose to 48.7 index points – the best level since June 2014. However, output growth will have to be sustained going forward for manufacturing employment to improve notably, said de Schepper.
The new sales orders index edged lower to 51.7 index points from 52.2 in May. While domestic demand remains under pressure, some respondents indicated that they benefitted from improved export orders.
The continued recovery in the Eurozone, reflected in the composite (preliminary) Markit PMI that increased to a four-year high in June, could be supporting local exporters. While the improvement in the composite Eurozone PMI to 54.1 was mainly driven by the services sector (the manufacturing component rose to 52.5 in June – a 14-month high), this is indicative of recovering demand in Europe, noted de Schepper. On the other hand, the Markit manufacturing PMI in the US fell to its lowest level since October 2013. In China, the flash PMI improved, but remained below 50 at 49.6 index points.
The inventories index rose for a third straight month to 56.8 index points, meaning that inventories continued to outstrip new sales orders and the PMI leading indicator remained below 1.
“This suggests that manufacturing production will likely remain subdued over the short term” said de Scheppers.
Going forward, manufacturers expect conditions to improve as the index measuring expected business conditions in six months’ time edged up to 62 index points.
As expected, the price index continued its upward trend and rose to 77.1 in June, up from 73.2 previously. Higher fuel prices, an important input cost for most manufacturers, as well as costs to offset the electricity supply constraint, likely drove the increase. With another hefty petrol price increase effective from 1 July, as well as a rise in the electricity tariff, manufacturers’ profitability will come under increasing pressure.