Eurozone Manufacturing Shrinks at Sharpest Rate in Four-Year History

02 October 2001

The Eurozone manufacturing economy, as measured by Reuters Eurozone Manufacturing Purchasing Managers’ Index, contracted in September for the sixth successive month, indicating that the sector is now in recession.

Having risen marginally in August, the PMI – an indicator designed to provide an overall snapshot of manufacturing conditions within the Eurozone – fell to 45.9 signalling the sharpest pace of manufacturing contraction since the survey began in June 1997.

The survey low figure was mirrored by record low PMI readings in Germany, France, Spain, Italy, Ireland and Austria. In line with the individual country surveys, September’s survey found no evidence (as would be expected given the proximity of the data collection to September 11) that the terrorist attacks on the US had any impact on this month’s data.

Highlights from the survey are:

• September’s sharp fall in the PMI was driven largely by similar marked declines in each of its three components: output, new orders and employment. Having registered a sustained period of growth between February 1999 and April 2001, manufacturing output fell for the fifth month running in September and at the sharpest rate in the survey history as manufacturers across the Eurozone continued to cut output in the face of falling orders.

• At a level of 44.3, the Reuters Eurozone New Orders Index pointed to the sharpest contraction of new business in the fifty-two month survey history and the sixth consecutive month of decline. The weakness of demand both within the Eurozone and in external markets was widely blamed for the latest fall in order books. Total orders in Austria and Germany fell at the fastest rates during the month. With the exception of Greece, new orders again declined across all of the Euro member countries covered by this survey.

• Falling production requirements and the weakness of order books again encouraged manufacturers to run down their inventories of inputs in September. Measured overall, stocks of purchases fell for the sixth month running as a result.

• Production capacity was also again reduced through a further cut in employment. A combination of forced redundancies, natural wastage and the laying off of temporary employees were reported by those companies who reduced their staffing levels in September leading to the fourth consecutive contraction of the Eurozone manufacturing workforce and the sharpest pace of contraction since January 1999.

• Finally, falling demand for inputs and, to a lesser extent, favourable movements in the euro exchange rate against the dollar, resulted in Eurozone manufacturers reporting the third consecutive monthly fall in input prices in September. Moreover, the rate of input price deflation was the sharpest since March 1999.

News source: NTC Research