Euro Zone Manufacturing Growth Moderates In August
September 3, 2007 – 11:05 pmThe Euro Zone manufacturing Purchasing Managers’ Index - PMI signaled moderation in the manufacturing sector in August, results of a survey showed Monday.
The latest report from the Royal Bank of Scotland and NTC Economics revealed that the Euro zone manufacturing PMI fell to 54.3 in August from the 54.9 in July. The number came in slightly higher than the flash reading of 54.2, released earlier. The report noted that the PMI fell to a 19-month low level in August.
A PMI reading above 50 reflects expansion in the manufacturing sector, while a level below 50 indicates contraction.
The headline manufacturing PMI indicated further weakening in new orders growth in August. The report noted that although new orders grew for the twenty-seventh straight month in August, the pace of growth eased. Export growth dropped to a three-month low in August. The continued growth of exports in Germany and Italy contrasted with weak growth in France and Spain.
Output growth remained down on the average seen through the first half of the year. The pace of increase was up only marginally from the eighteen-month low level witnessed in July. German manufacturers showed the strongest production growth of the big four nations, while Spain posted the weakest expansion.
Investment goods production showed the strongest growth, with the growth steadying at a sharp pace. Production of consumer goods also remained strong in August and stood above the average for the first half of the year. Production of intermediate goods rebounded in August, following a decline to a twenty-one month low level in July.
The survey results showed that backlog of work improved for the twenty-sixth consecutive month and suppliers’ delivery times stretched for the twenty-seventh successive month. The pressure on manufacturing capacity revealed signs of easing in August. Germany had the strongest growth in outstanding workloads, while Italy and Spain revealed modest fall. Delivery times continued to lengthen in each of the big-four nations covered, with German manufacturers continuing to report the greatest incidence of delays.
Commenting on the Euro zone Manufacturing PMI, RBS Chief Euro Area Economist, Jacques Cailloux said, “Today’s Eurozone Manufacturing PMI release confirms the message of the earlier Flash estimate, of the gradual slowdown of industrial sector growth in the face of rising interest rates, the strong euro and high oil prices. Citing the weak new business and outstanding workload indicators, Cailloux stated. “…the downtrend in growth of output looks set to continue in the short-term at least.”
Further, the survey revealed that input price inflation slowed in all big-four nations in August. Input price inflation eased to a 17-month low level in Germany and an 8-month low in France. Output price inflation also showed easing in August, falling to the lowest since February 2006. Factory gate price inflation slowed in Germany and France, while it picked up modestly in Italy and remained stable in Spain.
The economist noted, “…with the latest survey providing further signs of an easing of pressure on manufacturing capacity, pipeline pressures should remain under control through Q3.”
Employment in manufacturing sector grew for the eighteenth months, as firms added staff to boost capacity. The growth rate stood above the long-run series average, but slowed for the second month running to the weakest since last October.
The German manufacturing PMI declined to its lowest level for a year and a half in August. The PMI reading dropped to 56.0 in August from 56.8 recorded in July. The fall in new order growth and employment expansion led to the decline in PMI reading.
The French manufacturing PMI also showed easing growth in August. The headline PMI reading slid to 52.5, the lowest level since January. The indicator slid from 53.3 registered in July. The slowdown was driven by the lackluster growth of new orders.
Meanwhile, the Italian manufacturing sector maintained solid growth in August, reflecting further rise in output and new orders. The headline index of NTC/ADACI PMI rose to 53.6 from 53.3 recorded in the prior month.
The Spanish Manufacturing PMI slowed to 52.2, marking the weakest reading since October 2005.
The PMI data came just days ahead of the interest rate announcement of the European Central Bank, due later in the week. In August, the ECB maintained its key interest rate at a six-year high. The ECB held the minimum bid rate on the main refinancing operations at 4.0%, the highest level since August 2001. Euro zone interest rates were hiked in eight instances since late 2005.
Most analysts expect the ECB to leave its rates unchanged at 4.00% this time in the backdrop of the recent turbulence in the financial markets due to problems in the US subprime market. That said, the central bank is widely expected to lift rates to 4.25% as early as October, while some even see a further quarter point hike coming in December. However, some analysts commented that the bank could delay a tightening move in the wake of recent market turmoil.
Source: RttNews
