Euro area manufacturing slump deepened in December

Downturn continued despite monetary stimulus, easing of trade tensions

Photograph: iStock

Photograph: iStock

 

The euro area’s manufacturing downturn deepened in December despite renewed monetary stimulus and an easing of trade tensions, damping hopes that the region’s downturn has bottomed out.

IHS Markit’s gauge of factory activity weakened to 46.3, down from November’s 46.9. It’s the 11th consecutive month in which the reading has been below 50, signaling contraction.

The report will come as a disappointment after optimism that the economy might get a lift from an easing of international trade tensions and European Central Bank stimulus. US President Donald Trump said he’ll sign the first phase of a trade deal with China on January 15th, though the date has yet to be confirmed by the Chinese side.

The euro weakened, trading down 0.1 per cent at $1.1202 at 11.07am Frankfurt time.

“The ability of the wider economy to avoid sliding into a downturn in the face of such a steep manufacturing contraction remains a key challenge for the euro zone as we head into 2020,” said Chris Williamson, chief business economist at IHS Markit.

Orders fell in December, with the rate of job losses the sharpest since the start of 2013, the data showed. Germany was again the weakest-performing country, and the contractions in the Netherlands and Italy were the steepest in more than six and a half years. France saw a slight increase in activity.

Producers of intermediate and investment goods suffered most, while growth in consumer goods – albeit marginal – was reported for the first time since August.

Europe isn’t the only economy suffering. Export-reliant Singapore closed out 2019 with a slump in growth, as trade-reliant sectors struggled to gain traction.

Elsewhere in Asia though, manufacturing finished the year with a modestly brighter outlook, with fewer economies signaling contraction at factories. Purchasing manager indexes for South Korea, Thailand and Taiwan all moved above 50 in December. Malaysia was on the dividing line, while Indonesia stayed slightly below it.

China’s manufacturing sector expanded, aided by the prospect of an agreement preventing further tariff increases on goods shipped to the US.

In addition, the nation’s central bank kicked off 2020 by greasing the wheels. The People’s Bank of China trimmed the amount of cash that lenders must hold in reserve, and signaled continued action in 2020 to reduce borrowing costs for companies. – Bloomberg