Euro zone factory downturn deepens as Germany struggles: PMI

LONDON Thu May 2, 2013 4:52am EDT

A worker welds at a Portuguese exporting factory in Pontinha, on the outskirts of Lisbon March 18, 2013. REUTERS/Jose Manuel Ribeiro

A worker welds at a Portuguese exporting factory in Pontinha, on the outskirts of Lisbon March 18, 2013.

Credit: Reuters/Jose Manuel Ribeiro

LONDON (Reuters) - The rot spreading through euro zone manufacturers persisted through April, a business survey showed, bolstering expectations for an interest rate cut by the European Central Bank later on Thursday.

Of further concern for policymakers, factory activity in Germany, Europe's largest economy and the world's second-biggest exporter after China, fell for the second month and at a faster pace than in March.

France, Italy and Spain - the euro zone's second-, third- and fourth-largest economies - all saw continued contractions in manufacturing activity.

"There is nothing here to suggest that manufacturing will turn the corner and stabilize any time soon, putting greater onus on policymakers to act quickly to reinvigorate growth," said Chris Williamson, chief economist at survey collator Markit.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) fell to 46.7 last month from March's 46.8, a four-month low but coming in ahead of an earlier flash reading of 46.5.

"The fact that the Eurozone Manufacturing PMI came in slightly higher than its flash reading offers little consolation to the fact that the index fell further in April," Williamson said.

An index measuring output, which feeds into the Composite PMI due on Monday and offers a broader gauge of the economy, fell to 46.5 from March's 46.7, spending its 14th month below the 50 mark that separates growth from contraction.

The European Central Bank is widely expected to cut interest rates to a record low of 0.5 percent later on Thursday as the troubled currency union struggles to return to growth. <ECB/INT>

The euro zone economy chalked up its fifth straight quarter of contraction in the last three months of 2012, and a further downturn is predicted for the first quarter of 2013.

Economists expect only negligible growth this quarter, but even that view may be too optimistic. <ECILT/EU>

New business for factories, who were the main driving force behind the bloc's recovery from its last recession, has fallen for nearly two years, with the orders subindex coming in at 45.4, just a notch above March's 45.3.

That fall comes despite firms slashing prices at the fastest pace since the start of 2010 in an effort to win custom.

Official data on Tuesday showed prices across the region rose just 1.2 percent in April - well below the central bank's 2 percent target ceiling and giving them room to act - while unemployment levels hit a new record high.

The survey found factories reduced staffing for the 15th straight month during April, albeit at a slower pace than in March.

- Detailed PMI data are only available under license from Markit and customers need to apply to Markit for a license.

(Editing by Hugh Lawson)

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