European manufacturing ebbs further in March

LONDON Tue Apr 2, 2013 7:44am EDT

Employees stand in front of a new car at the Maserati new opening plant in Turin, January 30, 2013. REUTERS/Stefano Rellandini

Employees stand in front of a new car at the Maserati new opening plant in Turin, January 30, 2013.

Credit: Reuters/Stefano Rellandini

LONDON (Reuters) - Manufacturing across Europe's major economies endured another month of mostly deep decline in March, dragging down even former bright spots, surveys showed on Tuesday.

The slump among British manufacturers eased slightly, but overall purchasing managers indexes (PMIs) made gloomy reading.

Factories in Germany and Ireland, the relative stars of February's PMIs, fell back into decline last month. Everywhere else, the industrial rot extended.

Spanish manufacturing declined at its fastest pace since October, which followed news the government will revise its economic forecasts for 2013 to show a 1 percent contraction, from a 0.5 percent decline previously.

In France, factory activity retreated for a 13th month and car registrations there dived 16.4 percent in March, further underlining the malaise sweeping through the euro zone's second-biggest economy.

"The euro zone's March manufacturing PMIs ... (banishes) the recovery scenario projected by the European Central Bank further beyond the realm of likely probabilities," said Lena Komileva from G+ Economics in London.

Markit's Eurozone Manufacturing PMI fell in March to 46.8 from 47.9 in February - slightly better than an preliminary estimate of 46.6, but extending its run below the 50 mark that separates growth and contraction for a 20th month.

"Based on the experience of the past four years, the first quarter's Eurozone PMI average of 47.5 is consistent with no GDP growth (at best) and a weakening momentum into the second quarter."

The escalation of the crisis in Cyprus in the final week of March, however, had little bearing on euro zone manufacturing activity, at least judging by the fact the final PMI reading was no worse than the preliminary.

"We've had the Italian election, we've had the Cyprus story; we're a little bit uncertain to what extent that has played in," said Anatoli Annenkov, senior European economist at Societe Generale.

"But certainly, on the manufacturing side, that's a little bit weaker than what we'd hoped."

Combined with data on Monday from the United States, which showed factory activity growing at a three-month low, March made for an ominous month for the global economy - especially given the extent of jubilance on stock markets so far this year.

European shares extended gains on Tuesday after the data, although the euro slipped.

Tuesday's unemployment figures for the euro zone brought little cheer, showing the jobless rate held at 12 percent in February, a new record jointly with January, which was revised up from 11.9 percent.

THE CYPRUS QUESTION

Data from Britain were mixed. The UK manufacturing purchasing PMI index came in at 48.3, only slightly above February's surprisingly poor reading of 47.9, and a touch weaker than the Reuters consensus forecast.

While lending to British consumers ticked up in February, the number of mortgage approvals for house purchases fell for a second month, Bank of England data showed. Nonetheless, the value of home-backed lending rose.

"The onus is now on the far larger service sector to prevent the UK from slipping into a triple-dip recession," said Rob Dobson, senior economist at Markit, which compiles the PMIs.

Looking to April, the question will be to what extent the crisis in Cyprus, or rather the uncertainty it created, will have on the wider European economy.

Cyprus struck a 10-billion euro bailout deal with the European Union and International Monetary Fund last Monday, designed to untwine it from a failed banking sector that has long dominated its economy.

"While in some respects it is reassuring to see the events in Cyprus did not cause an immediate impact on business activity, the concern is that the latest chapter in the region's crisis will have hit demand further in April," said Chris Williamson, chief economist at Markit.

(Additional reporting by Christina Fincher and William Schomberg. Editing by Jeremy Gaunt.)

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Comments (2)
billy32 wrote:
We have an unsolvable problem, globally there are too many of us and we are too efficient…and getting more efficient every day.

Apr 02, 2013 10:28am EDT  --  Report as abuse
dareconomics wrote:
Despite all of the happy talk emanating from Brussels and repeated by the mainstream media, Europe is nowhere near a recovery. In fact, figures show that the Eurozone recession continues to deepen in contradiction to the consensus of economists who see growth right around the corner later in the year.

Eurozone unemployment hit a record of 12% in February with January’s 11.9% initial figure being revised upward:

Eurozone Unemployment 03.2013

Rising unemployment will continue to sap demand resulting in persistent Eurozone economic weakness.

Germany was formerly the only bright spot in Europe, but it is feeling the effects of weak demand from its southern neighbors. German manufacturing PMI dropped below 50 in March indicating contraction:

Markit Eurozone Components Manu PMI March 2013

Indeed, only France saw an increase in PMI in March, and it is still well within contractionary range.

All of this was viewed as good news by the investment community as the ongoing weakness in the Eurozone may push the ECB to cut rates a quarter point at its next meeting:

Eurostoxx 600 04.02.2013

Just like you shouldn’t fight the Fed, you should probably not fight the ECB either.

Full post with charts here:

http://dareconomics.wordpress.com/2013/04/02/eurozone-recession-worsens-through-1st-quarter/

Apr 02, 2013 12:36pm EDT  --  Report as abuse
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