Bloomberg News

Euro-Area Manufacturing Production Declines to 28-Month Low

December 01, 2011

(Updates with euro in fifth paragraph. For more on the euro region’s debt crisis, click EXT4.)

Dec. 1 (Bloomberg) -- Europe’s manufacturing industry contracted in November, as the region edged toward recession and global demand weakened.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region fell to 46.4 from 47.1 in October, London-based Markit Economics said today. That’s the lowest since July 2009 and in line with an initial estimate published on Nov. 23. A reading below 50 indicates contraction.

European companies are under increasing pressure to cut costs to protect earnings as faltering global demand erodes exports just as euro-region governments toughen spending cuts. Unemployment rose to 10.3 percent in October, the highest in more than 13 years and manufacturers were the most pessimistic in almost two years last month.

The euro-region economy “will be in recession soon,” said Klaus Baader, co-head of euro-region economic research at Societe Generale SA, told Ken Prewitt on Bloomberg’s Radio “Bloomberg Surveillance” from London yesterday. Still, “it’s likely to be mild rather than severe.”

The euro was little changed after the data were released, trading at $1.3472 at 10:30 a.m. in Brussels on the day.

In China, a manufacturing index fell to a 32-month low of 47.7 in November, Markit said. U.K. factory output probably contracted, while the Institute of Supply Management’s U.S. index probably rose to 51.7 in November from 50.8 in the previous month, according to Bloomberg News surveys.

German Contraction

The Organization for Economic Cooperation and Development on Nov. 28 lowered the growth forecast for its 34 member nations to 1.9 percent this year and to 1.6 percent in 2012. It had previously forecast growth of 2.3 percent and 2.8 percent this year and next, respectively. The euro region “represents the key risk to the world economy,” the Paris-based group said.

The German economy, Europe’s largest which has powered the region’s expansion, may shrink 0.2 percent in the current quarter, led by a slump in industrial output, the DIW Economic institute said yesterday. A decline in gross domestic product in the first quarter of 2012 “can’t be excluded,” it said.

A gauge of euro-region manufacturers’ export order books fell to minus 15.8 in November from minus 12.7 in the previous month, while companies also grew more pessimistic about the production outlook, the European Commission said on Nov. 29. An indicator of employment expectations also declined.

Limited Growth

PSA Peugeot Citroen Chief Executive Officer Philippe Varin said on Nov. 23 that European market conditions are tough and that he doesn’t expect a lot of growth in the next few years. Sergio Marchionne, head of Italy’s Fiat SpA, said he’s “cautious on what is possible in Europe” in 2012.

While the European Central Bank last month unexpectedly cut its benchmark interest rate by 25 basis points to 1.25 percent, it has so far ignored calls to step up purchases of government bonds to counter the turmoil. The Frankfurt-based central bank, led by Mario Draghi, will publish its latest economic projections when council members meet on Dec. 8.

“There’s a fairly good chance of the ECB delivering a 25 basis point cut next week,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “The immediate threat in the euro zone is not inflation, but financial instability.”

Markit will publish final data for the composite and services indicators on Dec. 5. It previously reported a gain in the services gauge to 47.8 in November from 46.4 in September.

--Editor: Patrick G. Henry

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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