Screeching Plunge in Romanian Manufacturing Sector (Record-breaking drop since July 2023)
Manufacturers in Romania experience tough start to 2025 as PMI® plunges to all-time low, signaling bleak business conditions.
Operation conditions in Romania's manufacturing sector took a nosedive in January, reaching unprecedented depths, according to the latest BCR PMI® data. The pace of deterioration outshadowed December's record, marking the sharpest drop in business conditions to-date in the survey history. Even though new orders decreased at a more modest rate, output volumes plummeted at a record pace, triggering an equally dramatic decrease in input buying. Despite the deteriorating conditions, optimism about output growth spiked to a level not seen since June 2024.
The headline BCR Romania Manufacturing PMI® is a composite, single-figure indicator 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 indicates an improvement in the sector over the month, while a figure below 50.0 signals a decline. From 46.4 in December, the headline PMI edged down slightly to hit a record low of 46.1, the largest deterioration in business conditions on record. Sluggish output and stock depletion, as well as loosened pressure on supply chains, contributed to the drop in the headline index in January.
Reflective of lackluster demand and tight budgets, Romanian manufacturers' order book volumes dropped once again in January. Although the rate of contraction eased somewhat, it remained steep and elevated by historical standards. Furthermore, manufacturers in Romania also reported a more moderate fall in export sales in January, with the speed of contraction ranking among the softest on record.
Output volumes were reduced at an accelerated rate in January, driven by weak demand and unfavorable economic conditions. The rate of reduction was significant and hit a record high for data collection, dating back to July 2023.
Buying activity also experienced a slight acceleration in January, with the rate of contraction being substantial and among the sharpest on record (only exceeded by February and August 2024). Consequently, manufacturers turned to existing inventories to meet production needs, resulting in pre-production inventories being depleted at a robust rate.
The strain on supply chains eases, leading to a less pronounced decline in vendor performance in January. Prolonged lead times were mainly attributed to supplier shortages. Shortages were accompanied by upward price revisions and increased energy costs, creating upward pressure on operating expenses. January saw a strong yet subdued rate of price inflation compared to the series average. Factory gate charges likewise rose at a sharper rate to start off the year. The rate of inflation was the second-highest on record, only narrowly surpassed by that seen in January last year.
As has been the case since June last year, recent data reveals ongoing layoffs in the workforce. Firms linked the reductions to slumping sales volumes and the failure to replace departing employees. Simultaneously, backlogs of work continued to be depleted in January, albeit at a slower rate than the previous month.
Firms express confidence that output will increase from its current level in 12 months' time. Optimism crept up to a seven-month high, as companies expect new contracts and planned product launches to boost output growth. Some firms also expressed hope for improved economic conditions in the year ahead.
Ciprian Dascalu, BCR's Chief Economist, stated, "The BCR Romania Manufacturing PMI fell to an all-time low at the start of 2025. The headline index came in at 46.1 in January, down from 46.4 in December. A softer improvement in suppliers' delivery times was a significant factor driving the decline in January, considering the more moderate increase in new orders compared to the previous month and a virtually unchanged Output Index. Production volumes collapsed at a record pace, proving that the manufacturing sector remains in dire straits. Although the HCOB Flash Germany Manufacturing PMI displayed minor improvement in January and reached an 8-month high, it's a positive sign for Romanian manufacturers as well. In general, external demand is expected to be moderately better in 2025, which should stimulate export orders.
"We are yet to have the complete data for 2024, but based on data up to November, we can conclude that the manufacturing output ended the second consecutive year of contraction. GDP growth is projected to slightly speed up in Romania in 2025, and provided that external demand is somewhat supportive, this year should break the streak, and manufacturing output should finish in the black. However, structural issues continue to be a crucial factor for Romanian manufactured goods and may ultimately lead to a slower recovery.
"Low demand and challenging economic circumstances continue to negatively affect output. The ongoing reduction trend of the Output Index has been going on for eight months. Weak new orders continue to be linked to budgetary constraints of customers. Both new orders and new export orders indexes rose higher in January compared to December, albeit remaining below the 50 neutral mark. We may be witnessing early signs of stabilization, but it is premature to conclude. Employment continues to suffer from the ripple effects of sluggish demand. An eighth consecutive monthly reduction in workforce numbers was recorded in January. Business expectations improved in January and firms remain optimistic despite the arduous period.
"Input prices remained upwards in the opening month of 2025. Cost pressures were strong but subdued by historical standards. Escalating energy and utility costs and supplier price hikes were the leading reasons mentioned by survey respondents for this uptrend. Output prices surged significantly in January relative to the previous month. Factory gate prices have been on the rise for 15 months."
- Despite the challenging economic conditions in Romania's manufacturing sector as reflected by the record low BCR Romania Manufacturing PMI®, there was a spike in optimism about output growth among manufacturers, reaching levels not seen since June 2024.
- In the realm of sports, the latest general news reports indicate a slight improvement in the HCOB Flash Germany Manufacturing PMI displaying an 8-month high, a positive sign for Romanian manufacturers as well, as external demand is expected to be moderately better in 2025, stimulating export orders.
