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News : EU Economy Last Updated: Jul 4, 2011 - 7:23 AM

Slowdown in Eurozone manufacturing in June as growth hits 18-month low; Contractions in Italy, Spain, Ireland and Greece
By Finfacts Team
Jul 1, 2011 - 9:25 AM

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Source: Markit

There has been a road-based slowdown in Eurozone manufacturing in June as growth hit an 18-month low. Contractions have been seen in Italy, Spain, Ireland and Greece.

The final Markit Eurozone Manufacturing PMI (Purchasing Managers' Index) fell to a one-and-a-half year low of 52.0 in June, down from 54.6 in May and unchanged from the earlier flash estimate. At 54.9, the average PMI reading during Q2 2011 is the lowest since the opening quarter of 2010 and well below the average of 57.9 seen in Q1. The PMI has signalled expansion in each of the past 21 months.

Broad-based slowdown saw Italy and Ireland join Spain and Greece in contraction territory

Headline PMIs fell in almost all of the nations for which data are collected in June. The sole exception was Greece which, nevertheless, still recorded the steepest rate of contraction of all countries. Italy, Spain and Ireland also saw sub-50 PMI readings, signalling deteriorating business conditions. That said, Markit observed that only very marginal declines were recorded in Italy and Ireland.

Ongoing growth was seen in Germany, France, Austria and the Netherlands. However, the rates of expansion were among the weakest since the recoveries began in these countries.

Growth of output at 21-month low, as new orders suffer modest decline

June saw manufacturing production increase at the slowest pace since September 2009. The rate of expansion was below the long-run survey average, but slightly above the earlier flash estimate. Output rose at slower rates in Germany, France, Italy, Austria and the Netherlands, while contractions were seen in Spain, Ireland and Greece.

The slowdown in output growth mainly reflected a slight drop in the volume of incoming new orders, which fell for the first time since July 2009. Weakening domestic markets – especially at the periphery – was a major factor underlying lower order book inflows.

June saw new export orders increase at the slowest pace since September 2009, led down by a decrease at intermediate goods producers. Export orders rose in almost all of the nations covered (the exception being Austria), but only Greece saw a faster rate of increase.

Production continued to rise at a robust pace in the investment goods sector in June, but lower output was seen at consumer and intermediate goods producers. Meanwhile, new order inflows stagnated at consumer and investment goods companies, and dropped at the steepest rate in over two years at intermediate goods producers.

Jobs growth led by Austria and Germany

Eurozone manufacturers’ backlogs of work declined for the first time in 20 months and the rate of depletion in finished goods inventories was the quickest since March, in both cases reflecting disappointing sales. Firms scaled back their recruitment as a result, with the rate of payroll growth hitting an eight-month low (and below the earlier flash estimate). Employment nonetheless continued to grow at an above-average pace for the survey.

Jobs growth was led by Austria and Germany, with solid increases also seen in France and the Netherlands. In contrast, Greece, Ireland and Spain all reported further job losses, while Italy saw headcounts fall for the first time since last November.

Input price inflation lowest for ten months

Lower oil and commodity prices led to a further marked easing in the rate of increase in average input prices. Purchasing managers reported that input prices rose at the slowest pace since August 2010, down sharply from February’s record high and below the earlier flash estimate. Rates of inflation slowed in all of the nations covered by the survey, with the sharpest easing seen in France, Austria and Spain.

Weaker cost pressures also partly reflected a further easing in the incidence of supply-chain disruptions in June. Although average vendor performance continued to deteriorate sharply, the extent of the lengthening in lead times was the least marked in almost a year-and-a-half.

Companies continued to hike their selling prices, however. Average output prices rose for the fifteenth successive month, led by marked increases in Germany, the Netherlands and France. Germany was notable in being the only nation to see an increase in the rate of output price inflation, while only Greece reported a reduction in average selling prices. The overall rate of charge inflation across the region was the slowest in six months.

Chris Williamson, Chief Economist at Markit said: "Eurozone manufacturers, who had provided the driving momentum behind the region’s recovery over the past two years, reported much slower growth in June. Over the past two months, output growth has weakened to the greatest extent since late-2008. This reflects a combination of lacklustre domestic demand in many countries, especially the austerity-hit periphery, as well as a near-stagnation of export sales.

"Increasing numbers of countries are showing signs of sliding back into recession, with deteriorating business conditions now reported in Italy, Spain, Ireland and Greece. Even manufacturers in Germany and France saw growth of new orders slip closer to stagnation.

"The brighter news was to be found in the inflation numbers. Although companies continued to hike prices in response to rising costs, the rate of input price inflation slowed to the weakest since August 2010 due to lower prices for oil and other commodities."

The Eurozone Manufacturing PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of around 3,000 manufacturing firms.

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