Europe's manufacturing industry contracted for a second month in July after oil prices rose to a record and the stronger euro damped export growth.
Royal Bank of Scotland Group's manufacturing index fell to 47.4 from 49.2 in June. That's down from a preliminary estimate of 47.5 published July 24th, and the lowest since June 2003. A reading below 50 indicates output declined.
The price of oil rose to a record $147.27 a barrel on July 11th, helping drive euro-region inflation to the fastest pace in more than 16 years.
That's eroding purchasing power and exacerbating Europe's economic slowdown as the euro's appreciation and a deepening US housing slump curb demand for exports.
"Producers are confronted with rising costs that they can't fully pass-on to their customers; that eats into their profit margins," said Allard Bruinshoofd, a senior economist at Rabobank in Utrecht. "Where they are passed on, they curb consumer spending power and hurt demand."
Akzo Nobel NV, the Dutch company whose paints are used on Airbus SAS's A380 airliner, on July 29th said weakening demand for household paint lowered US sales, adding the slowdown is spreading to the UK and continental Europe.
Growth in the 15 countries that use the euro will slow to about 1.5 per cent in 2009 from 1.8 per cent this year, the European Central Bank forecast in June. The economy grew 2.7 per cent last year.
The euro has risen 7 per cent against the dollar this year and reached an all-time high of $1.6038 on July 15th. Oil prices have gained 31 per cent this year.
Inflation in the euro zone accelerated to 4.1 per cent in July. The ECB last month raised its key interest rate by a quarter point to 4.25 per cent to contain prices even as growth slows.
Agencies