Europe's Manufacturing Industry Slumps to Two-Year Low

By: EW News Desk Team   Date: 2 September 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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02 September 2011

Europe's manufacturing industry shrank for the first time in almost two years in August as fresh fears arise over a possible double-dip recession.

The Markit/Cips manufacturing purchasing managers' index (PMI) for the entire region fell from 50.4 in July to 49 last month – the weakest overall reading since June 2009. The result was also lower than the previously forecasted score of 49.7, and meant that the manufacturing sector saw its first contraction since September 2009. According to the PMI, any figure under 50 indicates a contraction in activity.

See the Slide Show >>> The Government Debt of 12 Eurozone Nations

The main culprits for Europe’s weakened score were Ireland, France, Italy, Spain and Greece. In addition, although Germany, the Netherlands and Austria managed to remain above the no-change 50.0 level, there were troubling signs that these countries could be adversely affected in the future.

“PMIs either signalled stagnation or contraction in all countries surveyed, with output falling for the first time since July 2009 and job creation sliding to the lowest for nearly a year,” said Markit’s chief economist Chris Williamson in his press release.

Europe’s largest economy Germany also saw a 23-month low with a PMI of 50.9.

"Worryingly, Germany saw new export orders fall at the fastest rate of all countries surveyed, meaning the euro zone can no longer rely on export-led growth in its largest member state to help sustain even a lacklustre recovery for the region as a whole,” said Williamson.

Related: Europe’s Last Hope – Will Germany Step Up? : George Soros

Related: Money Matters: Why Germany Wants to Keep the EU Together

The only positive news for Europe was that despite a contraction in its manufacturing industry, manufacturing employment actually rose for the 16th successive month – albeit at a slower rate than previously recorded.

A lower rate of new orders, coupled with increased employment, meant that manufacturers could fill up previously backlogged orders. As such, outstanding orders fell at the fastest pace in over two years.

Yet, this still fails to mask the fact that overall GDP had risen by just 0.2 percent in the second quarter of this year with growing fears that the eurozone could slide back into recession in the second half of the year.

 

Related: Europocalypse - Are The Days of The Eurozone Numbered?: Nouriel Roubini

 

"The euro zone is clearly struggling in the face of tighter fiscal policy across the region, heightened sovereign debt tensions and financial market turmoil," said IHS Global Insight’s chief European economist Howard Archer. "Also importantly, slower global growth has clearly hit foreign demand for euro zone goods and services pretty hard."

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