Bloomberg News

Europe Manufacturing Shrinks More Than Initially Estimated

September 01, 2011

(Updates with comments from economist in fourth paragraph.)

Sept. 1 (Bloomberg) -- Europe’s manufacturing industry contracted more than initially estimated in August, adding to signs that the euro region’s recovery is faltering.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 49 from 50.4 in July, London-based Markit Economics said today. That’s the weakest in two years and below an initial estimate of 49.7 published on Aug. 23. A reading below 50 indicates contraction.

Europe’s economy is cooling as governments toughen spending cuts to narrow their budget deficits, sapping consumers’ willingness to spend. European economic confidence slumped the most in almost three years in August. In China, manufacturing growth remained near a 29-month low last month and manufacturing in South Korea and Taiwan contracted, highlighting signs of a worsening global slowdown.

“The euro zone is clearly struggling in the face of tighter fiscal policy across the region,” said Howard Archer, chief economist at IHS Global Insight in London. “Slower global growth has clearly hit foreign demand for goods and services pretty hard.”

The euro slid to the lowest in almost two weeks against the dollar on concerns over Europe’s ability to tackle the sovereign-debt crisis. The euro traded at $1.4297 at 10:52 a.m. in Frankfurt, down 0.5 percent on the day.

China Slowdown

The euro region’s economic growth slowed to 0.2 percent in the second quarter from 0.8 percent in the previous three months, the worst performance since a 2009 recession. In Germany, Europe’s largest economy, the recovery came to a near halt in the April-June period as consumers trimmed spending.

German manufacturing growth slowed more than initially forecast in August, with a gauge dropping to 50.9, Markit said. In France and Italy, output contracted for the first time since June 2009 and September 2009, respectively.

Companies may struggle to maintain their sales growth as the global economy shows increasing signs of a slowdown. An index of China’s manufacturing stayed near to the borderline between expansion and contraction in August, the China Federation of Logistics and Purchasing said today.

In the U.S., the world’s largest economy, manufacturing probably shrank last month for the first time in two years, raising the risk the slowing recovery may lose one of its biggest sources of strength, according to a Bloomberg survey of economists. The Tempe, Arizona-based Institute for Supply Management will release its report at 10 a.m. New York time.

In the U.K., which is not in the euro region, manufacturing also contracted last month.

New Orders

ThyssenKrupp AG, Germany’s largest steelmaker, on Aug. 12 reported fiscal third-quarter earnings that missed analysts’ estimates, citing slower global demand and “sharply” declining European consumption. K+S AG, Europe’s largest producer of potash, last month forecast 2011 operating profit growth falling short of analysts’ estimates.

A gauge of new orders in the euro region fell in August at the fastest pace in more than two years, Markit said. New export orders dropped for a second month, with Germany reporting the biggest decline among all nations. In Spain, Ireland and Greece, selling prices declined last month.

European Central Bank President Jean-Claude Trichet said on Aug. 29 that the bank is reviewing its assessment of inflation risks on slower growth. The euro-area economy may expand at a “modest pace,” he said.

Today’s data “were even worse than the disappointing earlier flash numbers, signaling an end to the manufacturing recovery,” said Chris Williamson, chief economist at Markit, in the note. “There is a growing risk that the euro zone could slide back into recession in the second half of the year.”

Markit will publish final data for the composite and services indicators on Sept. 5. It previously reported a drop in the services gauge to 51.5 in August from 51.6 in July.

--With assistance from Kristian Siedenburg in Vienna. Editors: Patrick G. Henry, Jennifer Freedman

To contact the reporter on this story: Simone Meier in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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