June 1, 2010 / 8:54 AM / 10 years ago

UPDATE 1-Euro zone factory PMI sinks, output growth slows

* Manufacturing PMI revised down vs flash; output revised up

* Output index falls at 2nd fastest pace in 13-year history

* Factory input prices highest since July 2008

(Adds market reaction, analyst comment)

By Jonathan Cable

LONDON, June 1 (Reuters) - Manufacturing in the euro zone expanded in May, but at a far slower rate than April’s 46-month high as cost pressures and tighter margins drove firms to take their feet off the production accelerator, a survey showed on Tuesday.

The 16-nation bloc and its common currency have been hit by waves of investor insecurity churned up by the region’s debt crisis and fears that troubles in Greece may be spreading to other peripheral euro zone economies.

“There has been a slowdown in growth globally and in the euro zone there is subdued domestic demand due to the austerity measure implemented in some countries,” said Luigi Speranza at BNP Paribas.

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For a graphic see: r.reuters.com/quj57k

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The Markit Eurozone Manufacturing Purchasing Managers’ Index for May sank to 55.8 from 57.6 in April, nudged down from an earlier flash estimate of 55.9.

This is its eighth month above the 50.0 mark that divides growth from contraction, but markets were unmoved by the data.

Cost pressures were on the rise, with the price of factories’ raw materials forced up by the weaker euro.

The output index recorded its second fastest slide in the survey’s history — only surpassed in the aftermath of Lehman Brothers’ collapse — to stand well shy of April’s near 10-year high of 61.2 at 56.8. It inched up from a flash reading of 56.7.

“Importantly, however, the pace of growth remained robust, and the slowdown in May no doubt reflects a payback from April’s ultra-strong growth to some extent,” said Chris Williamson at data provider Markit.

In Germany, the bloc’s biggest economy, manufacturing activity slowed from the previous month’s survey’s record high. Neighbouring France, the second biggest, saw growth in its sector slow from April’s near 4-year high.

Spain and Italy also saw a dip in their main indexes. A separate survey on the UK showed manufacturing activity holding on to its strongest pace in 15 years.

Euro zone manufacturers were hit by rising input prices, with that index reaching its highest level since July 2008 at 73.7 last month, compared to 73.4 in April.

The euro has been battered in recent weeks, driving up costs of materials from outside the bloc, on fears that Greece’s debt problems will spread and in spite of a $1 trillion safety net set up by European policymakers earlier this month.

However, the output price index fell from last month, suggesting producers had more trouble passing on price rises to customers.

Flash data released on Monday showed prices in the bloc rose 1.6 percent in May, faster than the 1.5 percent seen in April.

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

To subscribe to the full data, click on the link below: here

For further information, please phone Markit on +44 20 7260 2454 or email economics@markit.com

Editing by Toby Chopra, John Stonestreet

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