Euro zone July factory activity contracts at fastest rate in six years

Manufacturing activity in the euro zone contracted at its steepest rate since late 2012 last month as demand sank, a survey showed, puncturing sentiment among factory managers.

Forward-looking indicators in the survey suggest the sector won’t rebound any time soon and will likely embolden policymakers at the European Central Bank, who last week all but promised to ease policy further as the bloc’s growth outlook deteriorates.

IHS Markit’s July final manufacturing Purchasing Managers’ Index (PMI) was 46.5, just above an earlier flash reading of 46.4 but below June’s 47.6 and chalking up its sixth straight month below the 50 level that separates growth from contraction.

July’s headline index was at its lowest since December 2012 and a measure of output, which feeds into a composite PMI due on Monday and is seen as a good gauge of economic health, dropped to a more than six-year low of 46.9 from 48.5.

“The euro zone PMI dashboard is a sea of red, with all lights warning on the deteriorating health of the region’s manufacturers,” said Chris Williamson, chief business economist at IHS Markit.

“Rising geopolitical concerns, including trade wars and Brexit, and worries about slower economic growth both domestically and internationally were all widely reported as having subdued current demand and hit confidence in the outlook.”

A future output index, which measures optimism, plummeted to 52.6 from 56.6, its lowest reading since the end of 2012.

New orders fell for a tenth month and factories reduced headcount for a third month as they completed backlogs of work at the sharpest rate in seven years.

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