The BCR Romania Manufacturing PMI crossed into expansion territory for the first time in just over two years, reaching 50.1 in July vs 48.8 in June, according to the research note published by Erste Group. The expected drive from external demand is not yet visible, while the effects of high energy costs and the sluggish automobile industry are visible, and the longer-term effects of the investments in the defence area are going to be uneven across Europe.

The stabilisation of the manufacturing output at the level reached in May (latest available data) would, however, imply a 3.3% contraction for the entire year – after 1.1%-1.2% annual contraction rates in 2024-2025 and a steeper 2.5% y/y contraction in 2023.

Much stronger industrial activity, consistent with PMI indices more relevantly above the 50-point neutral benchmark, is needed for even industrial breakeven this year. Romania's industrial output contracted by 3.3% y/y in January-May, while manufacturing output declined by 4.5% y/y. 

Energy-intensive industries have been among the hardest hit. The country's light industry has declined even more sharply under pressure from lower-cost producers abroad. Oil refining output has fallen by 21.2% over the five years, while automobile manufacturing is down 19% as the sector adapts to electrification and increasing competition from Chinese manufacturers.

On the upside, the improvement in July was driven by the output and new orders sub-indicators. 

“Considering the weakness in hard data after the first five months of the year, though subject to some revisions, Romanian manufacturing output seems on track to head into the fourth consecutive year of contraction,” Erste Research concluded.

The analysts of the Austrian financial group argued that it would be too early to call a stabilisation in Romanian manufacturing activity as the global headwinds might derail it.

The recent positive readings for German soft data, with the flash Germany Manufacturing PMI posting six consecutive months above the 50.0 no-change mark and the highest output increase in almost four-and-a-half years in July, are yet to be reflected in higher external demand for Romanian manufacturers, as the increase in new orders was exclusively driven by the domestic market.

iulian@romania-insider.com

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