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Eurozone factory downturn takes root

Aug 01 2012 10:16

London - The eurozone’s manufacturing sector contracted for the 11th straight month in July as output and new orders plummeted, a business survey found on Wednesday.

The data, which showed the downturn is deepening its roots in the core, will provide grim reading for policymakers who are battling to contain a debt crisis that has raged across the continent.

Markit’s Eurozone Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 44.0, the lowest reading since June 2009 and below a flash reading of 44.1 and June’s 45.1.

The output index sank to 43.4, the lowest since May 2009, under June’s 44.7 and an earlier flash 43.6. Markit said it was in line with the official measure of production falling at a quarterly rate of over 1%.

“The eurozone manufacturing sector’s woes intensified again in July. Manufacturing therefore looks to be on course to act as a major drag on economic growth in the third quarter, as the eurozone faces a deepening slide back into recession,” said Chris Williamson at Markit.

After stagnating in the first quarter, narrowly avoiding a technical recession, a raft of gloomy data pushed economists in a Reuters poll last month to predict a contraction in the second and third quarters.

In a bid to spur growth the European Central Bank cut interest rates to a record low of 0.75% in June and is expected to cut them again to 0.5% before the year is out.

At its policy meeting on Thursday, it is expected to restart its dormant government bond buying programme with the aim of lowering Spanish and Italian government bond yields, which have reached levels unsustainable in the long-term.

Bank President Mario Draghi vowed last week that “the ECB is ready to do whatever it takes to preserve the euro”. 

Core trouble

Earlier data from Germany, Europe’s largest economy, showed its manufacturing sector contracted at its fastest pace in three years last month and it was a similar story in neighbouring France.

Spain, which slid deeper into recession in the second quarter, saw the 15th straight month of contraction, while Italy chalked up a year in contractionary territory.

The PMI for Greece, where the debt crisis began, has been below 50 since September 2009. Ireland was the only country to show signs of emerging from the downturn, Markit said, where its PMI was above 50 for the fifth month.

Factories across the eurozone cut prices at the fastest pace since early 2010, but the new orders index still fell to 42.8 from the previous month’s 43.5 and has only been lower once in over three years. New export orders were at an eight-month low.

“The current weakness of global economic growth suggests that all producers face a challenging environment in export markets as well as at home,” Williamson said.

Some of the output was generated by firms running down backlogs for the 14th consecutive month and workforces were cut for the sixth month to reduce costs.

Unemployment across the bloc rose to a euro-era high of 11.2% in June, official data showed on Tuesday. 

eurozone  |  europe debt crisis  |  pmi


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