A Softening Pace in Decline: Romania's Manufacturing Sector Shows Signs of Recovery
Deterioration of Romanian Manufacturing Sector Slows Down in February, According to PMI Survey
The latest figures suggest that the contraction in Romania's manufacturing sector has slowed down a bit midway through Q1 of the year. Although conditions remain tough, the rates of decline in output and new orders have moderated. Interestingly, manufacturers built their input stocks for the first time on record, hinting at delivery delays.
With various pressures at play, input cost inflation was significant and above the trend. The manufacturers, however, were cautious not to pass on these increased cost burdens to customers due to subdued demand conditions. Consequently, price increases were slower than in January.
The BCR Romania Manufacturing PMI is a composite indicator that reflects the health of the manufacturing sector. A reading above 50 signals an improvement, while a figure below 50 indicates a deterioration. The headline PMI score dipped to 48.3 in February, up from 46.1 in January, indicating the weakest decline in operating conditions for six months.
New orders dropped for the eighth consecutive month, although the rate of decline was the weakest across this period. Many manufacturers attributed the decrease to weak demand conditions, with a stronger reduction in export sales in February. Despite the contraction, there were signs of the slowdown easing in the domestic market.
While production levels continued to fall, the rate of decline slowed. To meet the reduced production requirements, workforce levels were trimmed modestly, with firms primarily reducing headcount through the non-replacement of staff leavers. Nevertheless, there were still indications of spare working capacity as backlogged orders were depleted.
Input purchasing showed a decrease for the sixth consecutive month, albeit at a slower pace. Despite reduced demand for inputs, delivery times lengthened, with reports of delivery delays. Stocks of purchases were raised for the first time across the 20-month survey history, albeit only marginally.
On the pricing front, there was a pick-up in operating expenses faced by manufacturers in February. Cost inflation rose sharply, driven by increased prices for raw materials, energy, and labor. Although average factory gate charges were raised, the rate of growth was slower than in January.
Looking ahead, manufacturers remain hopeful about output growth in the coming year, with some expecting the support of spending on advertising, staff, and machinery. The overall degree of optimism was subdued when compared to historical levels.
Ciprian Dascalu, Chief Economist at BCR, pointed out that the improvement seen in the PMI could be a positive sign of a bottoming out, even though the sector remains in contraction territory. He also highlighted the impact of external demand and geopolitical factors on the sector, with potential opportunities arising from a more favorable global environment.
Key factors shaping manufacturing performance in Romania:
- Contracting Sector: The Romanian manufacturing sector has experienced nine consecutive months of contraction, with the BCR Romania Manufacturing PMI dropping to a record low in March 2025.
- Industrial Output: Romania's industrial sector has shown a marked deterioration in Q1 2025, with industrial production estimated to have contracted by 3.6% year-on-year.
- Uncertain Demand: Both domestic and external demand remain weak, leading to reduced production volumes.
- External Factors: External demand uncertainty and geopolitical tensions significantly impact the sector, while a favorable global environment may provide growth opportunities.
- Operational Efficiency: Managing operational costs and efficiently aligning production levels with demand are crucial for short-term performance.
- Supply Chain Dynamics: Improved supplier delivery times due to reduced demand impact manufacturing operations.
These factors suggest that while challenges persist, there are potential opportunities for growth as external conditions improve.
- Despite the softest growth in six months, Romania's manufacturers continue to grapple with drivers of inflation, as input cost inflation remains significant and above the trend.
- In an attempt to mitigate the pressures of cost burdens, manufacturers have been cautious in passing increased costs onto customers due to subdued demand conditions, resulting in slower price increases.
- Amidst the contraction of Romania's manufacturing sector, there's optimism postulated for output growth in the coming year, predicated on investments in areas such as advertising, staff, and machinery, potentially aided by improvements in the global sports environment.
