Euro zone factories hit hard in June, job cuts rise

LONDON Mon Jul 2, 2012 6:38am EDT

View of the Renault headquarters in Boulogne-Billancourt, near Paris January 11, 2011. REUTERS/Jacky Naegelen

View of the Renault headquarters in Boulogne-Billancourt, near Paris January 11, 2011.

Credit: Reuters/Jacky Naegelen

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LONDON (Reuters) - Euro zone manufacturing took another hefty blow in June and factories are preparing for worse to come, according to business surveys on Monday that showed jobs were cut at the fastest rate in two-and-a-half years.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) was unchanged at 45.1 in June, above the preliminary reading of 44.8 and holding at its lowest reading since June 2009.

Anchored below 50 mark that divides growth and contraction for almost a year now, the survey again showed factories in the region's two biggest economies, Germany and France, are succumbing to a downturn that started in southern Europe.

Companies are clearly preparing for worse to come, cutting back on both staff numbers and stocks of raw materials at the fastest rates for two-and-a-half years," said Chris William son, chief economist at data provider Markit.

The PMI suggests that the goods-producing sector contracted by around 1 percent in the second quarter, with this steep rate of decline looking set to accelerate further as we move into the second half of the year."

Released on the heels of a summit of European Union leaders in which they agreed to help Spain and Italy borrow more affordably, the survey only highlighted the huge challenge policymakers face in restoring the currency union's economic fortunes.

Alarmingly, the survey's employment index fell to 46.7 in June, its lowest since January 2010, from 47.1 in the previous month, signaling accelerating job cuts.

With companies like French carmaker Renault (RENA.PA) last month announcing plans to cut jobs, the factory payrolls look unlikely to recover soon.

The factory output index rose just a tad to 44.7 from 44.6 in May, but still signifying a sharp contraction.

Similar surveys released earlier on Monday showed German and Spanish manufacturing shrank at its fastest pace in three years in June, while the pace of contraction in French and Italian factories eased a little bit.

Signs of easing price pressure provided one of the few positives in the survey. The input price index hit its lowest in three years and the output price index was at its lowest since February 2010.

While toiling against recession in many countries, euro zone manufacturers have at least been aided by a sharp fall in oil prices, which helped keep inflation steady at a 1 6-month low in June, according to data released on Friday.

That adds weight to economists' belief the European Central Bank will to cut interest rates on Thursday to a new record low of 0.75 percent. They also said they may have to take more emergency measures to soothe financial markets, a Reuters poll last week found. <ECB/INT>

(Editing by Andy Bruce and Toby Chopra)

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Comments (2)
mulholland wrote:
Witness the concerted failures of Keynesian deficit stimulus, inadequate partial reserve banking, and socialism. Sovereign debts must be repaid. All banks fail lest they keep 20% capital reserve. And socialism has failed in every instance.

Inflation is an historical exception. Rare hundred year episodes of inflation are followed by a compensating hundred year deflation.
The 1914 dollar is worth three cents today. After another hundred years the dollar likely buys a dollars worth again.

How could an ever expanding world population cease to make inflationary demands upon limited resources? Population collapse is inevitable. Seven billion humans are unsupportable on planet Earth. The precipitating event for population collapse could be war,famine or pestilence. Or a heat wave in the mid west grain belt.

Jul 02, 2012 7:00am EDT  --  Report as abuse
@Mulholland- I completely agree with everything you wrote in your third paragraph. But I have to somewhat disagree with what you state in your first.

The U.S. banks were gambling 90% of their assets leaving a 10% capital reserve and they “lost”, which was a big factor in the collapse of the financial markets and this so-called Great Recession (seems more like a Depression to me). And the US banks are not socialist.

It is my understanding that to be safe and stable, all banks should have a 35%–and no less- capital reserve at all times. That’s what Brazil requires, and they are supposedly avoiding the worst of this global economic crisis.

Jul 02, 2012 2:18pm EDT  --  Report as abuse
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