Recovery slows for euro zone manufacturers

A slowdown in the recovery of euro zone manufacturers was confirmed

yesterday, with a closely watched poll of purchasing managers falling to its lowest level in six months in May.

The poll will put further pressure on the European Central Bank (ECB) to act to stimulate the European economy when it meets this week.

ECB president Mario Draghi and his colleagues have signalled that all options are up for discussion when they meet on Thursday.

The final manufacturing purchasing managers’ index for last month, compiled by data company Markit, registered 52.2. While the PMI remains above the crucial 50 level that marks an expansion in activity, it is down from 53.4 in April and the lowest reading for six months.

The gauge of momentum showed that only Spain and the Netherlands saw a rise in momentum last month. Factory activity in France slipped, with the region’s second largest economy the only one of the seven economies covered by the poll where the PMI fell below 50.

Weaker figure

Of concern for a region where unemployment remains close to record highs, the lower reading for the euro zone was partly down to a weaker figure for the jobs component of the index. The sub index for employment fell from 51.3 to 50.5, its lowest level since March.

A fall in the reading for new orders, down from 53.9 to 52.3, suggested rises in activity could remain sluggish in the months ahead.

Chris Williamson, chief economist at Markit, said the fall in the PMI would add to calls for the ECB to add stimulus to the economy by easing monetary policy later this week. However, Mr Williamson argued the case for more central bank action was not so clear cut.

Concern

“Taken together, the PMI surveys [for manufacturing and services activity] are pointing to a second-quarter GDP increase of about 0.5 per cent,” Mr Williamson said, though he acknowledged the weaker figure for Germany was a cause for concern for policy-makers.

The reading for the bloc’s biggest economy fell to a seven-month low of 52.3.

Economic data due today may reinforce the view that action is needed, with economists predicting a grim mixture of too-low inflation and unemployment near a record.

Mr Draghi has braced investors with warnings on a potential “negative spiral” of prices, and will have new ECB forecasts likely to include a lower outlook for inflation and growth.

Those projections will inform talks in the next three days with his management team and then in the wider ECB governing council as officials determine how radical a response is needed. – (Copyright The Financial Times Limited 2014 and Bloomberg)