Euro zone factory slowdown deepens

The slowdown in euro zone factory activity deepened in December as new orders tumbled, a business survey showed today, suggesting the economy may have slipped further into recession in the last quarter of 2012.

Manufacturers helped lift the 17-nation bloc out of the last recession, but purchasing managers' surveys showed Ireland was the only member of the currency union to register growth in December as the malaise sank its roots further into the bloc's core economies.

"The euro zone manufacturing sector remained entrenched in a steep downturn at the end of the year. The region's recession therefore looks likely to have deepened, possibly quite significantly, in the final quarter," said Chris Williamson, chief economist at Markit.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) edged down to 46.1 in December from November's 46.2. The final December figure was down from an earlier reported flash reading of 46.3. The index has been below the 50 mark that divides growth from contraction since August 2011.

The output index fell to 46.0 from November's 46.1 and as the decline continued, factories cut their workforces at a faster pace than in the previous month.

German manufacturing activity shrank in December for the 10th consecutive month, hit by a drop in production and a slide in new orders which hit a four-month low, a survey showed today.

Markit's Purchasing Managers' Index (PMI) for the German manufacturing sector fell to 46.0 from 46.8 in November, well below the 50 line that divides growth from contraction.

It was also lower than the flash estimate of 46.3.

"German industry is finding it increasingly difficult to keep production at the same level as at the peak of the recovery phase," said Tim Moore, a senior economist at Markit.

He said the data for December indicated that the situation had come to a head in the winter.

Economists, faced with mixed data in the last few weeks, expect Europe's biggest economy to have contracted in the fourth quarter of 2012 but see an improvement in the first quarter of 2013.

Elsewhere, Spanish manufacturing activity shrank for the 20th straight month in December, suggesting the struggling economy remained in a deep slump at the end of the year.

French manufacturing activity also retreated for the 10th month in a row in December, albeit at a slower pace, with another slump in new orders boding ill for 2013.

The Markit/CDAF final manufacturing PMI came out at 44.6 for the month, up slightly from November's 44.5, but still well below the 50 mark separating expansion from contraction.

Meanwhile British factory activity jumped unexpectedly in December to grow at its fastest pace since September 2011, raising the chance that the economy eked out growth at the end of 2012.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) rose to a 15-month high of 51.4 in December from an upwardly revised 49.2 in November - a far stronger increase than any predicted in a Reuters poll of 24 economists.