A further business deterioration in the Eurozone - the eight largest European economies (Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain) within the twelve-nation euro currency zone and accounting for 92% of zone manufacturing activity – was signalled by the Reuters Eurozone Manufacturing Purchasing Managers Index for January.

This remained below the ‘no change’ mark of 50.0 for the fifth month in succession, reflecting the sustained weakness of the Eurozone manufacturing sector.

Despite this, however, the PMI composite index rose at the start of 2003, up to 49.3 from 48.4 in December, driven by slightly stronger growth of output and a modest rise in new orders. In contrast, sharply falling levels both of employment and stocks of inputs (a reflection of manufacturers’ need to cut capacity) again exerted strong negative influences on the overall PMI.

Key data from the from the indices …

New Business
This provided the principal stimulus to the rise in the PMI. Having registered 49.3 in December, the seasonally adjusted Manufacturing New Orders Index rose back above the 50.0 no change mark at the start of 2003, recording 51.0. Although indicative of only a modest improvement in new business, and still down on levels seen as recently as last summer, January’s index was nevertheless the highest since August 2002.

In line with the slight strengthening of Eurozone manufacturing order books in January, there was modest growth of overall production through the month, following the near-stagnation of output in December. The Manufacturing Output Index recorded 51.0, up from 50.1 in December.

Despite the slight growth in output and new business recorded in January, the competitive nature of business conditions in the region meant that Eurozone manufacturers remained firmly focused on reducing their cost bases and raising productivity. Employment in the sector continued to fall sharply as a result, suggesting current levels of demand are insufficient to fully utilise existing capacity. The Manufacturing Employment Index rose slightly from December’s recent low but, at 46.3, continued to point to a significant rate of job shedding.

Deliberate stock reduction policies (in tandem with lower input purchasing) also reflected companies’ need to reduce their costs. At a level of 45.9 in January, the Manufacturing Stocks of Purchases Index signalled a contraction of inventories of inputs for the twenty-second consecutive month. Inventories of finished goods also continued to be run down.

Input Prices
Weaker demand for raw materials and semi-manufactured goods was reflected in a further modest improvement in average suppliers’ delivery times in January but, despite little evidence of supply-side pressures, average input price inflation accelerated. The Manufacturing Prices Index for January recorded 55.2, its highest level since last August, with the increased cost of oil the principal reason given by manufacturers for the sharp rise in their prices.

The Eurozone PMI provides the first indication each month of Eurozone business conditions. It is not opinion-sourced, being based on answers to questions about real events asked of purchasing executives in some 2,500 companies. It is compiled by NTC Research and sponsored by Reuters.

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