Euro Zone Manufacturing Activity Declines

LONDON (Reuters) – Manufacturing activity across the euro zone declined at its fastest pace this year in September, as demand sharply waned despite price cuts by factories, according to a survey released on Tuesday.

The downturn was broad-based, with Germany, Europe’s largest economy, experiencing its most significant worsening of factory conditions in 12 months.

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

An index measuring output, crucial for the composite PMI due Thursday and a good gauge of economic health, dropped to a nine-month low of 44.9 from 45.8 in August, surpassing the 44.5 flash estimate.

Cyrus de la Rubia from Hamburg Commercial Bank stated, “Euro zone industrial production will likely drop by around 1% in the third quarter compared to the last. With incoming orders plummeting, we can expect another dip in production by year-end.”

In a sign of continued decline, demand fell at the fastest rate this year, even as factories started cutting prices. The output prices index decreased to 49.2 from 51.1.

Inflation is anticipated to have fallen to 1.8% last month, as indicated by upcoming official data, which is below the European Central Bank’s 2.0% target. According to a Reuters poll, the ECB has cut interest rates twice this year and is expected to do so again in December.

“The ECB will be pleased to see that purchase prices fell in September, particularly after three months of rises. The drop in oil and natural gas prices helped reduce input costs, with companies passing on some of the savings to their customers,” said de la Rubia.

“However, we shouldn’t get too comfortable; these price declines might not last. With tensions in the Middle East escalating, there’s always the potential for energy prices to spike again.”