Romania’s manufacturing activity contracted sharply in October, with the Purchasing Managers’ Index (PMI) compiled by BCR Romania falling to 47.6 points, its lowest level in seven months, according to Erste Group.

The decline, driven by falling output and weaker new orders, erased the gains seen over the past six months, when the index had climbed to 49.8 points, close to the neutral 50-point threshold separating expansion from contraction.

Business confidence also dropped to the lowest level since data collection began. Companies cited eroding purchasing power, caused by persistently high inflation and slowing nominal wage growth, as key factors likely to suppress demand in the months ahead.

Analysts from the Austrian financial group noted that the sharp drop in new orders was the most concerning development. After briefly crossing the 50-point mark in September for the first time in 15 months, new orders contracted again in October. Firms attributed the decline to rising prices and constrained customer budgets, while new export orders also weakened, indicating a softening of external demand.

Data from the National Institute of Statistics (INS) had already shown signs of strain in industrial production. Romania’s manufacturing output contracted by 3.3% year-on-year in August, reversing three months of annual growth, according to figures published on October 15. This downturn occurred even as the PMI data at that time appeared more resilient, raising questions over the index’s early warning reliability.

The deterioration in the PMI’s industrial output sub-index in October coincided with mixed signals from official data on new orders. While the INS index of new orders declined by 4.9% year-on-year in August after several months of growth close to or above 10%, Erste Group highlights that the 12-month moving average still showed an annual increase of 5.2%. This would suggest that manufacturing activity should have been expected to further advance in the near term.