Bloomberg News

Euro-Area Manufacturing Production Contracts for Third Month

November 03, 2011

(See EXT4 <GO> for more on the European debt crisis.)

Nov. 2 (Bloomberg) -- Europe’s manufacturing industry contracted for a third month in October, adding to signs the euro-area economy is edging toward a recession.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 47.1 from 48.5 in September, London-based Markit Economics said today. That’s below an initial estimate of 47.3 published on Oct. 24. A reading below 50 indicates contraction.

Europe’s economy is showing signs of a deepening slump as its worsening debt crisis erodes the confidence of consumers and executives alike. The Organization for Economic Cooperation and Development on Oct. 31 lowered its euro-region growth projections for this year and next and called on the European Central Bank to lower its benchmark interest rate at its meeting tomorrow.

“We remain of the view that the ECB will be cutting interest rates before long,” Nick Kounis, head of macro research at ABN Amro in Amsterdam, said before today’s report. “Although we think that interest rates will be left on hold this week, we expect a rate reduction in December.”

In China, a manufacturing index dropped to the lowest since February 2009 last month. The Institute of Supply Management’s U.S. factory index unexpectedly declined last month and U.K. manufacturing output contracted.

‘Increasingly Bleak’

The euro-region economy may expand 1.6 percent this year and 0.3 percent in 2012, the OECD said. It had previously projected growth of 2 percent in both years. The region may show a “marked slowdown with patches of mild negative growth,” according to the Paris-based group.

Adding to signs of a slowdown, European economic confidence slumped to the lowest in almost two years in October and German business sentiment dropped to a 16-month low. Euro-region unemployment unexpectedly increased in September, suggesting companies are cutting costs to protect earnings.

Stuttgart, Germany-based Daimler AG, the world’s third- largest maker of luxury vehicles, said on Oct. 27 that third- quarter earnings before interest and taxes dropped 19 percent, missing analysts’ estimates. Heidelberger Druckmaschinen AG last month lowered its full-year earnings forecast.

“As the sovereign debt crisis and the ensuing euro crisis have escalated sharply in recent months,” the “economic outlook has turned increasingly bleak,” Volker Kronseder, chief executive officer of German packaging-equipment maker Krones AG, said on Oct. 26. “Fears of recession have resurged even as the economy is doing well.”

ECB Rate Meeting

European leaders last week carved out a second Greek aid package after Prime Minister George Papandreou scraped together parliamentary approval for additional austerity measures. Greece will receive 130 billion euros ($179 billion) in public funds plus a 50 percent writedown of its debt.

German Chancellor Angela Merkel, French President Nicolas Sarkozy and ECB President Mario Draghi will meet to discuss Greece in Cannes at 6 p.m. local time. They will be joined three hours later by Greek Prime Minister George Papandreou.

The ECB has so far ignored calls for lower borrowing costs, instead opting to extend the use of unconventional tools. It last month decided to resume purchases of covered bonds and offer banks unlimited cash for up to 13 months.

The central bank will probably keep its benchmark interest rate at 1.5 percent when council members meet tomorrow, according to a Bloomberg survey. The ECB will announce its rate decision at 1:45 p.m. in Frankfurt.

Markit will publish final data for the composite and services indicators on Nov. 4. It previously reported a drop in the services gauge to 47.2 in October from 48.8 in September.

--With assistance from Kristian Siedenburg in Budapest and Richard Weiss in Frankfurt. Editors: Patrick G. Henry, Jones Hayden

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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