Euro-Area Factories Face Unprecedented Supply-Chain Delays

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Euro-area manufacturers are battling unprecedented delays in securing raw materials and parts, leading to a record build-up of uncompleted orders and rising prices as the economy starts to recover.

Factories surveyed by IHS Markit cited a “mismatch of supply and demand” along with transport difficulties -- especially sea freight -- as the main reasons for delays. A gauge of manufacturing activity rose to 62.9 in April, the highest reading in the survey’s 24-year history though slightly below an earlier estimate.

Euro-Area Factories Face Unprecedented Supply-Chain Delays

Companies reported higher costs for chemicals, metals and plastics and ran down their inventories to cope.

“Euro-zone manufacturing is booming,” said Chris Williamson, IHS Markit’s chief business economist. “The consequence of demand running ahead of supply is higher prices being charged by manufacturers, which are now also rising at the fastest rate ever recorded by the survey.”

Coronavirus infections and slow progress on vaccinations drove the euro zone into a double-dip recession in the first quarter, leaving the bloc’s economy trailing far behind the U.S. Yet a pickup in inoculations and the prospect that the region’s 800 billion-euro ($963 billion) joint recovery fund will soon kick in has fueled optimism.

Williamson said increases in employment and investment in machinery and equipment signaled in the survey may help companies overcome the capacity constraints.

“This should help bring supply and demand more into line, taking some pressure off prices,” he said. “But this will inevitably take time.”

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