EU Economy
Eurozone growth in June weakest since October 2009, led by sharp manufacturing slowdown
By Finfacts Team
Jun 23, 2011 - 9:14 AM

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Source: Markit

Eurozone growth in June is weakest since October 2009. Led by a sharp manufacturing slowdown, the Markit Flash Eurozone PMI (Purchasing Managers' Index) Composite Output Index, based on around 85% of usual monthly replies, fell from 55.8 in May to a 20-month low of 53.6 in June.

Output growth has slowed sharply since peaking in February, taking the average composite Output Index reading for the second quarter as a whole down to 55.7, which is lower than the average of 57.6 seen in the first quarter but still well above the average of 54.9 observed in the final quarter of last year.

However, the loss of momentum during the second quarter has been marked, especially in manufacturing, where output growth slowed to the weakest since September 2009. A more modest easing in activity growth was seen in services, to the slowest since December. In contrast to the trend since the recession, the rate of manufacturing expansion has fallen increasingly below that of services since April.

New business rose at the weakest rate since November 2009, led by the first (albeit small) decline in manufacturing new orders since July 2009. New export orders for manufactured goods rose only modestly, posting the smallest increase since September 2009. Inflows of new business into the service sector meanwhile slowed for the second successive month, showing the weakest rise for seven months.

Other forward-looking indicators also turned down. The index measuring expectations of service sector activity in the coming year saw the joint-largest monthly fall since October 2008, taking confidence to the lowest since July 2009. Meanwhile, the ratio of manufacturing new orders to inventories, which acts as a guide to near-term output developments, fell to the lowest since April 2009.

The rate of expansion held up well in Germany, down sharply on the strong pace seen in the first quarter but up slightly compared with May. However, the composite figure disguised a further steep slowdown in manufacturing, which was offset by faster services expansion. In contrast, growth slowed in both sectors in France, taking the overall rate of expansion down to an eight-month low.

Elsewhere in the Eurozone, outside of France and Germany, output fell for the first time since November 2009. The rate of decline was the fastest since September 2009.

Employment rose at the weakest rate for five months, in part a reflection of slower growth of backlogs of work, which showed the smallest increase since October (with manufacturing posting a decline in backlogs for the first time since October 2009).

Job creation hit a seven-month low in manufacturing and a three-month low in services. Staffing levels rose in France and Germany, but fell across the rest of the region as a whole.

Having slipped to a four-month low in May, inflation of average prices charged for goods and services accelerated slightly in June, but the pace remained below the near record-high seen in April. Service sector charges rose at an increased rate whereas manufacturers’ selling prices showed the smallest increase for six months.

The easing in output price inflation in manufacturing was driven by a further steep easing in input price inflation from the survey-record rate of increase seen in February. A ten-month low in the rate of manufacturing input price inflation was accompanied by a five-month low in the service sector. Measured across both sectors, input costs rose at the slowest rate since October, down sharply from March’s peak.

Source: Markit

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said: "The euro area’s economic growth surge has lost momentum at a worrying rate in the past two months. While the average PMI reading for the second quarter as a whole suggests that the economy grew by around 0.6%, down from 0.8% in the first quarter, the reading for June was consistent with a quarterly growth run rate of just 0.4%. Manufacturing growth has slowed especially sharply, slipping close to stagnation in June.

"Even German manufacturing, the driving force of the region’s recovery, has seen a marked deterioration in output and new orders growth – linked to a large extent to a severe weakening of export order book growth. Meanwhile, the euro area excluding France and Germany has fallen back into contraction for the first time since late-2009.

"Although prices charged for goods and services rose at an increased rate, input cost inflation slowed sharply, largely reflecting lower oil and other commodity prices. Lower costs should feed through to lower selling prices, and ultimately consumer price inflation, in coming months."

The Eurozone PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of around 4,500 companies based in the euro area manufacturing and service sectors.

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