Romania’s manufacturing economy contracted again in August 2024, as firms continued to contend with weak demand conditions. Though there were sustained falls in output and new orders, the rates of decline eased. Purchasing activity was trimmed at the quickest rate on record. With that, cost pressures cooled slightly, but were nevertheless still elevated. Selling prices rose at the fastest pace since February.
The headline BCR Romania Manufacturing PMI® is a composite single-figure indicator of manufacturing performance derived from indicators for 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 health of the sector over the month, while a figure below 50.0 points to a deterioration.
The PMI picked up to 48.4 points in August 2024, the second consecutive month of decline for the industry, compared with 47.8 in July 2024. The latest reading was indicative of a sustained, but softer downturn. Though conditions remained challenging for Romanian manufacturers across the board, notably, all five components imparted positive directional influences on the headline PMI in August.
The largest sub-component – new orders – remained a key factor behind the overall deterioration in the health of the sector, having declined for the second successive month in August. Panel members noted the challenging economic environment and subdued demand conditions as limiting factors.
Export performance was again weak in August, although the pace of contraction in international orders was the second-slowest on record.
Predominantly reflecting lower sales, manufacturers in Romanian scaled back their production volumes for a third month running in August. Some firms reportedly faced staffing issues.
In line with lower output requirements, firms continued to take a cautious approach to purchasing in August. The latest fall in input buying was not only strong, but the quickest on record. At the same time, manufacturers continued to run down their stocks of purchases in August. The rate of depletion was the softest for three months, however.
Despite subdued demand across the sector, average lead times on the delivery of inputs lengthened in August, as has been the case since the start of data collection. The deterioration in vendor performance was one of the most pronounced on record. With that, input prices continued to rise at a sharply elevated pace in August, as firms noted raised raw material, fuel and labour costs. Following the drop in demand for inputs, inflationary pressures eased on the month, however.
Nevertheless, Romanian goods producers looked to pass on some of the cost burden to customers by raising their charges. Though only marginal, the rate of selling price inflation hit a six-month high in August. Elsewhere, factory workforce numbers decreased again midway through the third quarter, marking three consecutive months of modest job cuts. According to anecdotal evidence, headcounts were reduced in line with lower production volumes.
Providing further signs of spare capacity, backlogs of work declined at the strongest rate in the survey’s history thus far. In addition to reduced workloads, firms attributed August’s rapid backlog clearance to increased efforts to complete orders.
On a more positive note, looking ahead, firms were upbeat in their projections for future output in August. Moreover, the degree of positive sentiment picked up from July’s record-low, as a number of firms expect planned marketing and promotional activity to bear fruit.
“There was a second consecutive month of decline for Romanian manufacturing in August, with a BCR Romania Manufacturing PMI reading of 48.4, indicating that the firms included in the survey saw operating conditions deteriorate in monthly terms. With more than half of the year of PMI data, things are looking quite bleak for the Romanian manufacturing sector and judging by the output data for the first six months of 2024 published by the National Institute of Statistics, the manufacturing sector might post an annual growth close to zero in 2024. However, the headline PMI value itself, came higher in August vs the 47.8 recorded in July, which can be seen as a positive sign, and it gives hope for higher readings towards the end of the year”, said Ciprian Dascalu, Chief Economist at BCR.