Eurozone Manufacturing Growth Weakest Since Early 2016

Eurozone manufacturing expanded at the weakest pace since early 2016 in December as new orders fell for a third month and business confidence eroded to a six-year low, results of the survey by IHS Markit confirmed on Wednesday.

The final Eurozone Manufacturing Purchasing Managers’ Index, or PMI, was 51.4, unchanged from the flash, but lower than November’s 51.8.

A PMI score above 50 suggests growth in the factory sector.

The latest PMI reading for the euro area was the weakest since February 2016.

“A disappointing December rounds off a year in which a manufacturing boom faded away to near stagnation,” IHS Markit Chief Economist Chris Williamson said.

“The weakness of the recent survey data in fact raises the possibility that the goods producing sector could even act as a drag on the overall economy in the fourth quarter, representing a marked contrast to the growth surge seen this time last year.”

That said, some of the recent weakness could prove temporary, being the result of protests in France and the auto sector struggling to adjust to new emissions regulations, Williamson noted.

“However, the undercurrent of weak demand and growing risk aversion evident across the surveys suggests that any rebound could prove modest at best, with Brexit representing a particularly worrying unknown for the outlook,” the economist added.

Growth in the consumer goods sector accelerated to a solid level, while operation conditions for the intermediate goods industry deteriorated. Capital goods sector logged marginal growth.

Eurozone’s big-four continued to lead the slowdown with lowest PMI readings from the rest.

Despite hitting a 2-month high, Italy’s factory PMI remained in contraction territory, at 49.2 in December.

Germany, the biggest euro area economy, logged a score of 51.5, a 33-month low. France’s PMI reading fell to 49.7, marking the first contraction in manufacturing activity in 27 months.

Spain’s PMI reading of 51.1 was the weakest in 28 months.

Among other euro countries, the Netherlands saw improvement in the pace of factory growth with the PMI rising to 57.2, the highest in three months.

The fall in new orders was the worst in over four years amid reports of ongoing challenges in the auto industry plus wider political and economic instabilities.

Export demand also decreased, led by the sharpest decline for six years in Germany.

Output increased modestly, supported by faster depletion in backlogs. Employment growth was little unchanged from November’s 26-month low.

Business confidence sunk to its lowest level since the end of 2012 amid continued worries over global trade, political uncertainties and tightening financial conditions.

Meanwhile, input cost inflation eased to a 17-month low amid reduced prices for oil-based products. However, rising costs for metals and supply-side shortages meant that overall inflation remained strong.

Output charge inflation softened further and was the weakest since July 2017.

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