Eurozone Manufacturing Index Falls To Sixteen-Month Low

03 June 2003

The Eurozone – the eight largest European economies (Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain) within the twelve-nation euro currency zone – witnessed the strongest rate of decline for sixteen months, suggesting a renewed weakening of the manufacturing economy in the wake of the Iraq war.

According to the Reuters Eurozone Purchasing Managers Index there was a further deterioration of business conditions in the manufacturing sector during May. The seasonally adjusted PMI fell from 47.8 in April to 46.8 in May, indicating deterioration for the eighth time in the past nine months.

Key points from the May report are …

Manufacturing Output
The latest decline in the PMI reflected increases in the rate of decline of manufacturing output, new orders and employment in May. The strength of the euro was seen to have damaged export performance, but benefited manufacturers through a reduction in prices paid for imported inputs.

Order books contracted at the fastest pace since December 2001. The seasonally adjusted index dropped from 47.2 in April to 45.6 in May. Exports fell particularly sharply, blamed largely on the recent strength of the euro. Orders have now fallen for three consecutive months, with the rate of decline gathering pace in each month.

This fell at the fastest rate for sixteen months in May as firms cut capacity in line with weakened order books. Manufacturing employment has now fallen for twenty-four straight months. Germany recorded the steepest cut in staffing levels, with the rate of decline picking up on April, followed by France, the Netherlands, Spain and Italy. All these countries saw employment fall at faster rates than in April.

Average input prices fell for the first time in fourteen months in May. The seasonally adjusted Input Prices Index fell sharply from 56.2 in April to 48.2 in May. Lower oil prices and cheaper imports arising from the euro’s recent appreciation caused average input costs to fall, signalling a marked turnaround from the steep oil-related increases in average input prices seen in previous months..

The PMI is based on information provided by around 3,000 manufacturers across the euro area. It reflects hard data on recent changes in activity levels rather than business sentiment or expectations. As such, the index provides the earliest indication of actual business conditions.

Data sourced from: NTC Research; additional content by WARC staff