Eurozone Manufacturing Shrinks at Sharpest Rate in Thirty Months

02 July 2001

The Reuters Eurozone PMI – an indicator providing an overall view of manufacturing conditions within the Eurozone – registered 47.9 in June to signal the third consecutive monthly contraction of the Eurozone manufacturing economy. Moreover, the rate of decline accelerated during the month to reach the fastest since December 1998.

A further drop in output and new orders together with the first fall in overall manufacturing employment since May 1999 were the main factors behind to the latest contraction of the Eurozone manufacturing economy, as signalled by the PMI [Purchasing Managers’ Index].

Economists at NTC Research which compiles the data for Reuters commented: "The further downturn in the Reuters Eurozone Manufacturing PMI (and analysis of individual country PMIs) indicates that the slowdown in Eurozone manufacturing growth that largely began in Germany has now spread throughout much of the Euro area. Falling new orders in many Euro countries appears to be the main factor fuelling the slowdown, which in turn reflects poorer global market conditions."

The overall volume of new orders received by Eurozone manufacturers shrank in June for the third month running, as slackening global demand continued to have a growing negative impact on Eurozone manufacturing sales. Furthermore, the rate at which incoming new orders declined accelerated to hit a two-and-a-half year high. In response to the continued contraction of demand, manufacturers cut back production for the second consecutive month in June and also at the fastest rate for two-and-a-half years.

In order to reduce capacity in line with falling new orders, manufacturers scaled down employment levels in June. The Reuters Eurozone Employment Index – which is a lagging indicator – fell below the critical ‘no change’ mark of 50.0 to indicate the first contraction in overall manufacturing employment for just over two years.

In anticipation of weaker future sales, manufacturers ran down stocks of purchases for the third month running in June. Moreover, the rate of stock depletion was marginally faster than that seen in the previous month. With many firms meeting current production requirements from existing stocks and reducing purchasing activity in line with falling orders, suppliers of raw materials were again able to concentrate their efforts on improving lead-times. Suppliers’ delivery times shortened for the third successive month in June and at the fastest pace since January 1999.

Average raw material prices continued to rise during the month, largely because of the weakness of the Euro against key currencies and the high cost of oil. However, the rate of input price inflation fell to a two-year low, largely due to weaker demand for raw materials.

News source: NTC Research