A river under the bridge in the Netherlands

Netherlands PMI February 2022

Netherlands: Manufacturing sector conditions improve at quicker pace in February

The NEVI manufacturing Purchasing Managers’ Index (PMI), produced by IHS Markit, rose to 60.6 in February from January’s 60.1. The print marked the first back-to-back increase in the index since May 2021, and signaled a stronger improvement in business conditions compared to the prior month, as the index moved further above the neutral 50-threshold.

The headline improvement was driven by the fastest rise in new work since October last year. Both domestic and foreign demand grew robustly, with the latter increasing at the strongest pace in five months. Although output continued to grow, the pace of expansion eased due to material shortages and staff absences, as Covid-19 continued to weigh on productive capacity. That said, backlogs of work rose only marginally and stocks of finished goods increased for the first time in nearly two years. Given the improved demand dynamics, firms took on more staff for the sixteenth month running. Turning to prices, input price inflation remained elevated but eased to a 12-month low as there was some easing of supply chain pressures. Nonetheless, output prices rose at one of the strongest rates in the survey’s history due to sustained input price inflation and an upbeat demand outlook. Lastly, output expectations rose to a five-month high in February.

Albert Jan Swart, manufacturing sector economist at ABN AMRO Bank, explained the impacts of rising energy prices:

“Survey data were collected before tensions around Ukraine escalated with Russia recognizing two republics as sovereign states and invading Ukraine. Dutch manufacturing firms will probably be affected by higher costs for oil and gas. […] Many Dutch factories use natural gas and it is mostly not possible to switch to another energy source on short notice. While some firms have purchased gas in advance at lower rates, rising natural gas prices can put more pressure on profit margins as the crisis lasts longer and contracts expire. In the event of a gas shortage in Europe, for example next winter, large industrial firms will be cut off first.”

Swart added that sanctions imposed on Russia also hurt some firms:

“Per year, Russia spends about EUR 5.0 billion on Dutch industrial goods, such as chemicals, agricultural machinery and medical equipment, according to Statistics Netherlands (CBS). This is about 1.5% of total Dutch industrial exports. The sanctions make trade with Russia more difficult.”

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