Euro Zone Manufacturing Activity Decline in August

LONDON (Reuters) – Euro zone manufacturing activity remained mired in contraction in August, a survey showed on Monday, indicating that recovery might be some way off as demand fell sharply.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, stood at 45.8 in August, just ahead of the 45.6 preliminary estimate but firmly below the 50 mark that separates growth from contraction.

An index measuring output, which is connected to a composite PMI due Wednesday and serves as a good guide to economic health, slightly improved to 45.8 from 45.6 in July, just above the 45.7 flash estimate.

“Things are going downhill, and fast. The manufacturing sector has been stuck in a rut, with business conditions worsening steadily for three months, marking a grueling 26-month recession,” said Cyrus de la Rubia at Hamburg Commercial Bank.

“New orders, both domestic and international, are slowing down further, dashing any short-term hopes for a rebound.”

The index covering new orders dropped to 43.3 from 44.1, its lowest level since December. Demand from abroad also fell at the fastest rate of the year.

This decline coincided with manufacturers increasing their prices for the first time in 16 months, driven by factories in France, the Netherlands, Greece, and Italy.

“This could spell trouble for the ECB, which has been dealing with persistent inflation in services while relying on falling manufacturing prices to maintain disinflation,” de la Rubia added.

Overall inflation in the currency bloc fell to a three-year low of 2.2% in August, according to preliminary official data, reinforcing the case for further policy easing from the European Central Bank.

Economists predict the ECB will cut its deposit rate two more times this year, in September and December, according to an August Reuters poll, with about 80% of economists supporting this forecast, less than what markets currently expect.