Decline in Eurozone Manufacturing Output and Service Industries

04 October 2001

Twin surveys, published today by NTC Research for Reuters, report a decline in September manufacturing output as well as a first-time contraction in the Eurozone’s service industry. [The Eurozone comprises the six EU member states that have signed-up to the Euro currency: Germany, France, Spain, Italy, Ireland and Austria.]

Reuters Eurozone Composite Purchasing Managers’ Index is based on data provided by over 4,000 manufacturing and service sector companies. It reveals …

• A modest contraction in private sector economic activity within the Eurozone in September for the first time in the survey’s three-year history. The Index recorded 48.1, down from 50.4 in August, as an increased proportion of firms in both the manufacturing and service sectors reported that they had cut output in response to falling levels of demand. While Eurozone manufacturing output fell for the fifth straight month, the decline in services activity recorded in September was the first in the survey history.

• September’s overall decline in output resulted from further falls in new business within the Eurozone. The Eurozone Composite New Business Index remained below the 50.0 no change mark for the sixth consecutive month in September and, at 46.2, indicated the sharpest rate of decline in the survey history. Demand from both the manufacturing and service sectors fell at record rates over the month. Eurozone manufacturers again reported the sharper rate of decline in new orders over the month. Manufacturing order books were reported to have contracted for the sixth successive month, while service sector demand fell for only the second month running.

• In line with the general weakness of the private sector Eurozone economy, growth of employment in the euro area remained almost negligible in September. The Eurozone Composite Employment Index recorded 50.1, from 50.9 in August, as expansion of the Eurozone private sector workforce remained the weakest recorded by the survey to date. While manufacturing employment fell for the fourth month running in September, service sector staffing levels continued to rise, albeit at the slowest rate since data were first collected in July 1998.

• Input price inflation eased further in September. The Eurozone Composite Prices Index recorded 51.1, from 51.7 the previous month, suggesting that growth in average costs remained the weakest since April 1999. Growth of costs has eased sharply over the past year as prices of many raw material have fallen, pressure on wages and salaries has eased and oil prices have stabilised. In the manufacturing sector input prices fell for the third month running in September, while service sector costs continued to register significant growth.

The second survey, focuses solely on the Eurozone’s service industries, again utilising data from the Eurozone Services Purchasing Managers’ Index. Key points are …

• In a continuation to the general downward trend seen since April 2000, the Eurozone Services Business Activity Index fell again in September, to 49.0 from 51.7 the previous month, to signal contraction in Eurozone service sector activity for the first time since the survey began in July 1998. Those companies reporting a decline in their activity levels over the month widely blamed the general global economic slowdown, which was exacerbated in September by the adverse effects of the terrorist attacks in the US. Even so, although each of the five countries covered registered a downturn during the month, only two – Germany and Ireland – recorded outright contraction, with the overall decline in Eurozone services activity driven principally by the marked contraction of the service sector in Germany.

• Incoming new business declined for the second consecutive month in September, as signalled by the New Business Index which recorded 47.5, the lowest reading in the survey history. Firms across the Eurozone reported weaker figures for new business over the month, as uncertainty over the global economic outlook (particularly in the light of the events of September 11) encouraged increasing numbers of clients to defer the placement of new contracts. In line with the individual country data on activity levels, new business fell the sharpest in Germany over the month. Ireland also posted a decline in demand. Growth in new business continued to be recorded in France, Italy and Spain, but at only marginal rates.

• The Employment Index registered growth in overall service sector employment in September. Nevertheless, at a level of 51.5, the Index signalled the weakest pace of growth in the survey history. All national economies (with the exception of Germany) recorded growth in employment through the month, with France registering the fastest pace of growth.

• Charges for services fell for the second consecutive month in September, led by a sharp reduction in German service sector rates. Meanwhile, input price inflation remained almost identical to that seen the previous month as companies continued to report that higher wages and salaries had placed upwards pressure on their costs.

• Business expectations regarding service providers’ activity levels in twelve months’ time fell sharply in September to the lowest level in the survey history. All Eurozone countries covered recorded a sharp drop in expectations in September (with German business sentiment actually turning negative) as widespread concerns over the global economic outlook were heightened by fears that the adverse effects of the terrorist attacks in the US could tip the global economy into recession.

News source: NTC Research