Euro Zone Manufacturing Activity Declines

LONDON (Reuters) – Manufacturing activity across the euro zone decreased significantly in September, showing the fastest decline this year as demand sharply waned, despite factories lowering prices, according to a survey released on Tuesday.

The downturn was widespread, with Germany, Europe's largest economy, experiencing its most pronounced deterioration in factory conditions in a year.

HCOB's final euro zone manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, dropped to 45.0 in September. This figure was slightly above the preliminary estimate of 44.8, but still further from the 50 mark that separates growth from contraction.

An index measuring output, which contributes to a composite PMI due on Thursday, fell to a nine-month low of 44.9 from 45.8 in August, surpassing the flash estimate of 44.5.

Cyrus de la Rubia at Hamburg Commercial Bank noted, "Euro zone industrial production will likely decline by about 1% in the third quarter compared to the last one. With incoming orders dropping rapidly, we can expect another dip in production by the year's end."

In a sign of no imminent recovery, demand decreased at the fastest rate this year, despite factories reducing prices. The output prices index fell to 49.2 from 51.1.

Inflation is expected to have declined to 1.8% last month, as indicated by official data expected later on Tuesday, which is below the European Central Bank's (ECB) 2.0% target. The ECB has decreased interest rates twice this year and is anticipated to do so again in December, according to a Reuters poll.

De la Rubia stated, "The ECB will appreciate the decrease in purchase prices in September, especially following three months of rising prices. The reduction in oil and natural gas prices contributed to lowering input costs, allowing companies to pass part of those savings to customers."

However, he cautioned, "Let’s not become too complacent – these price drops may not persist. With tensions rising in the Middle East, there's always the possibility that energy prices could surge again."