Eurozone Manufacturing Slowdown Eases

01 February 2002

The Reuters Eurozone Purchasing Managers Index, released Friday, remains below the critical ‘no change’ mark of 50.0 in January, registering the tenth consecutive monthly decline in the Eurozone manufacturing industry.

However, a significant rise in the PMI, from 44.1 in December to 46.2, indicated a further easing in the rate of contraction. In fact, the pace of decline of the manufacturing economy suggested by the PMI was the slowest for five months.

Moreover, at a national level, all eight Eurozone countries covered by the survey (Germany, France, Spain, Italy, Ireland, Greece, Austria and the Netherlands) recorded an improvement in their PMI levels, although Greece was still the only country to register a reading above 50.0.

Main indicators in the survey are …

New Orders
The slower rate of decline of new orders was reflected in manufacturing firms’ production levels in January, as output fell at the weakest rate since August last year. Synchronised with new orders at a national level, Greece, Italy and Ireland all recorded a rise in output during the month, while the other five countries saw a reduction in the rate at which production fell.

The need to lower costs and limit exposure to recessionary pressures continued to be an important theme in the Eurozone manufacturing sector during the first month of 2002. Firms used inventory reduction programmes as one tool to achieve this goal. The Reuters Eurozone Stocks of Purchases Index registered 44.2 in January to signal a drop in inventories of raw materials for the tenth month in a row, albeit at the slowest rate for four months.

Panel firms also attempted to lower costs and improve efficiency by streamlining and reorganising production. As a result, total manufacturing employment in the Eurozone fell for the eighth successive month and at a similar pace to that seen in the past two months. For the second month running, only Greece reported a rise in manufacturing employment.

Raw Materials Stocks
With many manufacturing firms keen to run down stocks of raw materials and with production requirements still falling, overall purchasing activity fell again in January. This in turn increased the excess capacity at suppliers’ concerns, enabling them to improve delivery times for the tenth month running.

Input Prices
Despite the one-off inflationary pressures associated with the introduction of euro notes and coins at the beginning of the year, the average price of inputs continued to fall significantly in January, although the rate of deflation was less marked than in the previous three months. Panellists attributed lower input costs to excess supply of a number of commodities and strong competition amongst suppliers.

Order Books
Underlying the latest contraction in total manufacturing business activity was a further deterioration in firms’ order books, which also shrank for the tenth straight month. However, signs of a partial recovery in general business confidence at the start of the new year did help to slow the rate of decline of new orders to an eight-month low. Indeed, Greece, Italy and Ireland even saw a small rise in overall demand during the month.

The Reuters Eurozone PMI provides the first indication each month of Eurozone business conditions, based on data collected from purchasing executives in around 2,500 companies. It is compiled by NTC Research and sponsored by Reuters.

News source: NTC Research