US-Led Slowdown Continues to Squeeze Eurozone Manufacturers

01 August 2001

According to the July survey published by Reuters Eurozone Manufacturing Purchasing Managers’ Index – seen by many as the bellwether of European manufacturing activity – contraction of the Eurozone manufacturing economy accelerated at its fastest rate since December 1998, when the sector was hit by the global financial crisis.

The Index recorded 47.3 in July, down from 47.9 in June, the fourth consecutive month in which the Index has recorded a level below the critical no change mark of 50.0.

Economists at NTC Research which compiles the data for Reuters commented: “The impact of the US led slowdown on the Eurozone manufacturing economy has become increasingly apparent, with Euroland industrial production recording its first contraction in May. The Index, which fell to its lowest level since the emerging markets crisis in late 1998, suggests this downturn will intensify over the coming months.”

Main points from the Index are:

* Falling output, employment and stocks of purchases together with a further improvement in suppliers’ delivery times (which is inverted before being included in the PMI) continued to drag the PMI below the 50.0 line. However, once again it was declining new orders, which fell at the fastest rate since November 1998, that had the most detrimental impact on the indicator.

* Measured overall, manufacturers in the Euro area reported a fall in the volume of incoming new orders for the fourth month running in July. Moreover, the rate of contraction of demand continued to increase to reach the fastest for just over two-and-a-half years, as uncertainty with regard to the future performance of the global economy heightened. Weaker demand in turn prompted manufacturers to adjust down production levels for the third consecutive month in July. Furthermore, output declined at the sharpest rate since December 1998.

* With output and new orders continuing to fall, manufacturers reduced employment levels for the second month in succession in July. Moreover, a drop in the Reuters Eurozone Employment Index from 49.5 in June to 49.1 in July, signalled a marginal rise in the rate at which manufacturers shed their labour.

* Expectations of a further deterioration in economic conditions led firms to cut back stocks of purchases again in July. Stocks fell for the seventh time out of the last eight months in July and at a rate identical to June’s four-year survey high. Once again, with current production requirements being met from existing stocks and lower levels of new orders prompting firms to buy smaller quantities of raw materials, suppliers were again able to improve lead-times. In fact, delivery times improved at the fastest rate for just over two-and-a-half years.

* Finally, reduced demand for raw materials and the filtering through of last month’s lower oil prices, caused the average cost of inputs to fall for the first time in over two years in July. The Reuters Eurozone Input Prices Index fell from 51.1 in June to 46.0 in July.

News source: NTC Research