Eurozone Manufacturing Sinks to 17-Month Nadir in June

03 July 2003

The rate of deterioration marginally worsened in Eurozone manufacturing business conditions during June, reports the Reuters Eurozone Manufacturing Purchasing Managers Index.

Last month’s index signalled a slight acceleration in the rate of deterioration of manufacturing business conditions, with the seasonally adjusted barometer falling from 46.8 in May to 46.4 (50 = no change on previous month), indicating the fastest rate of decline for seventeen months and the ninth deterioration in the past ten months.

The PMI is based on information provided by some 3,000 manufacturers across the Eurozone – the eight largest European economies (Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain) within the twelve-nation euro currency zone.

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.

Key data from the PMI are …

The seasonally adjusted Manufacturing Output Index fell from 48.6 in May to 48.1, signalling the third consecutive month of falling production after six months of growth. The rate of decline was the steepest since January 2002. Output indices deteriorated in all countries except Germany, where a modest easing in May’s strong rate of contraction was recorded. The sharpest rate of decline was recorded in Ireland, followed closely by the Netherlands and then Germany. Output also fell in France and Italy. In contrast, continued growth of output was recorded in Spain, Austria and Greece, but in all three cases the rate of growth was modest and weaker than in May.

Order books fell for the fourth successive month in June. The rate of contraction gathered pace to the highest since December 2001. The drop in orders was principally driven by the recent strength of the euro against the dollar, which caused exports to also fall at the fastest pace since December 2001. All countries except Greece and Austria reported a fall in order books. The strongest rate of order loss was again recorded in Germany, followed by France.

This fell sharply in June, the rate of decline only slightly weaker than the sixteen-month high recorded in May. Employment has now fallen for twenty-five consecutive months. The steepest rate of decline was recorded in the Netherlands, followed closely by Germany. Employment also fell in France, Spain, Ireland, Italy and Greece.

Input Prices
Average input prices fell for the second month running in June, having increased in each of the previous thirteen months. The rate of deflation was the sharpest since February 2002. The seasonally adjusted Input Prices Index fell from 48.2 in May to 44.4. While lower oil prices, relative to the March peak, helped to reduce average input costs, a more widely reported cause of lower costs was inflows of cheaper imported inputs resulting from the euro’s recent appreciation against the US dollar.

Cost Inflation
Input cost inflation was also again subdued through the weak demand in the supply chain. The amount of raw materials purchased by manufacturers was cut at a rate only moderately less than the sixteen-month high seen in May and has now fallen for ten straight months. As a result, excess capacity was signalled in the supply chain. Suppliers’ delivery times consequently showed the greatest shortening for sixteen months.

Stocks of purchases fell at the fastest rate for six months as firms streamlined inventory levels in the face of falling demand. Stocks of finished goods likewise fell, driven principally by deliberate destocking policies.

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