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Eurozone manufacturing slows to 13-month low in August

Manufacturing in the eurozone slumped in August to a 13-month low, a closely watched survey showed on Monday (Sep 1), in a further sign that recovery is faltering and that tensions with Russia are taking their toll. 

BRUSSELS: Manufacturing in the eurozone slumped in August to a 13-month low, a closely watched survey showed on Monday (Sep 1), in a further sign that recovery is faltering and that tensions with Russia are taking their toll.

Markit's purchasing managers' index (PMI) measure of output in the eurozone's manufacturing sectors fell to a figure of 50.7 in August, according to the final estimate. That was still above the 50-point boom-or-bust mark and it compared with the previous flash reading of 50.8. However, the figure stood at 51.8 in July and was the fourth consecutive monthly fall.

"Sentiment declined across most of the region, with Italy now joining France below the 50 mark," said Christian Schulz at Berenberg Bank. "In Germany and Spain, manufacturing activity continued to expand, but at slower rates," he said.

The data comes just ahead of the European Central Bank's monthly policy meeting on Thursday, and adds more pressure on Mario Draghi, the ECB head, to introduce more stimulus. "The now increasingly visible economic effects of the Russian crisis have significantly increased the probability of European policy stimulus," said Erik Nielsen, head economist at Unicredit Bank.

Most analysts had believed this would not happen as early as the ECB meeting on Thursday, with expectations that Draghi would reiterate the urgency to fight stagnation and low inflation expressed in a US speech last week. His recent remarks in this direction have had a strong effect. The euro hit a one-year low against the dollar on Monday.

"Speculation for the ECB to consider more aggressive policy action this week has increased considerably after Draghi indicated downside risks to long-term inflation expectations last week," Credit Agricole said.

The European single currency slipped to US$1.3126, its lowest level since September with traders increasingly awaiting stimulus from the ECB.

Growth in the eurozone stagnated in the second quarter while inflation eased to 0.3 per cent in August, raising concerns the 18-nation bloc is about to enter a deep slump.

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