Eurozone’s Manufacturing Downturn Gathers Pace

on Nov 2, 2012
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On November 2, Markit Economics released its Eurozone Purchasing Managers Index (PMI) survey, which expectedly showed that in October, the Euroarea’s economy contracted for a fifteenth consecutive month. The score, however, indicated that rates of contraction in output and new orders were accelerating.

**Eurozone Manufacturing PMI Drops In October**
In its press release, Markit Economics said that the downturn in the Eurozone manufacturing sector extended in October, with the PMI index falling to 45.4, from 46.1 measured in September, with any number below 50 pointing to a contraction. The reading, however, was slightly above an earlier estimate which put the PMI at 45.3.

“The manufacturing sector opened the final quarter of 2012 on a disappointing footing, as the downturn in the sector gathered pace,” noted Rob Dobson, senior Markit economist in the press release. “A broad-based decline in production was seen across the consumer, intermediate and investment goods sectors,” added Mr Dobson, pointing out that manufacturers felt the pressure of both weak domestic demand and deteriorating intra and extra-Eurozone trade flows.

**Contraction Rates Accelerating**
In addition, Markit Economics also noted that the manufacturing contraction rate was accelerating, with the steepest rates seen in the intermediate and investment goods sectors. New business fell in October for a seventeenth consecutive month, whereas new orders declined for the sixteenth month in a row.
!m[Ireland The Sole Exception ](/uploads/story/711/thumbs/pic1_inline.png)In terms of employment, job losses were reported for the ninth consecutive month, at the fastest rate since July, with manufacturers being cost-cautions, which in turn led to further cutbacks in employment.

**Contraction Seen in All Nations Except Ireland**
Among the Eurozone members, Ireland was the only country where the PMI was in positive territory, rising to a three-month high of 52.1, whereas Netherlands’ PMI slipped back into contraction territory.
Among the countries where contraction accelerated were Germany, Italy, Spain, Austria and Greece. While France’s PMI climbed to a two-month high of 43.7, the slowdown in the country remained stronger than the Eurozone average.

“The national data also paint a bleaker picture,” noted Mr Dobson. “Contractions were seen in all nations except Ireland, with the majority reporting faster rates of decline than in September”.
**Eurozone Core**
Mr Dobson also pointed out that the national data indicated that ongoing weakness of the Eurozone periphery was combined with weakening of the Euroarea’s previously strong core of Germany and France.
Markit’s PMI for German manufacturing, also released on November 2, indicated lower levels of production and new orders. The seasonally adjusted final PMI remained under the 50 threshold, falling to 46.0 in October from 47.4 in September. The index pointed to a return to job losses, which corresponds to data by the German Federal Employment Agency, which earlier during the week signalled that unemployment in Germany had increased in October.
France’s employment also continued to decline in October, with Markit Economics reporting that the rate of job shedding remained solid. France’s negative PMI score prompted Jack Kennedy, senior economist at Markit, to note that there was “a heightened risk of the French economy falling back into recession before the end of the year.”

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