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European factory activity in a flux, ends 2019 on bad note

Reuters/London
Filed on January 3, 2020 | Last updated on January 3, 2020 at 09.11 pm
British businesses further reduced stocks of goods they had built up in case of a no-deal Brexit.

(Reuters file)

Overall gauge contracts for 11th straight month; UK in worst slide since 2012

Factories across the eurozone ended 2019 in poor shape with activity contracting for an 11th consecutive month, according to a survey which suggested the start of the new year is unlikely to see any improvement.

IHS Markit's final manufacturing Purchasing Managers' Index (PMI) has been below the 50 mark separating growth from contraction since February, and at 46.3 in December it was below November's 46.9 but higher than a preliminary estimate of 45.9.

An index measuring output, which feeds into a composite PMI that is seen as a good gauge of economic health, sank to 46.1 from 47.4.

"Eurozone manufacturers reported a dire end to 2019, with output falling at a rate not exceeded since 2012," said Chris Williamson, chief business economist at IHS Markit.

"Although firms grew somewhat more optimistic about the year ahead, a return to growth remains a long way off given that new order inflows continued to fall at one of the fastest rates seen over the past seven years."

The index measuring new orders dipped to 46.6 from 46.7 and as they did all last year, firms turned to completing backlogs of work to stay active. Also indicating they don't expect an imminent improvement, purchases of raw materials were reduced and staffing levels cut.

In Germany, the bloc's largest economy, its export-dependent manufacturing sector contracted further in December as the rate of decline in production accelerated for the first time in three months, but output expectations rose slightly.

IHS Markit's PMI for manufacturing, which accounts for about a fifth of the economy, fell to 43.7 in December from November's five-month high of 44.1.

The final December reading was slightly above a flash reading of 43.4, but remained below the 50.0 mark separating growth from contraction for the 12th month in a row.

"Germany's manufacturing sector closed out 2019 with another weak performance and remains a thorn in the side of the economy," said Phil Smith, principal economist at IHS Markit. "Sustained cuts to workforce numbers at factories continue to pose a threat to Germany's so-far solid consumer spending," he added.

British factory output fell in December at the fastest rate since 2012 as a tepid global economy hurt demand and businesses further reduced stocks of goods they had built up in case of a no-deal Brexit.

The output gauge in the IHS Markit/CIPS UK Manufacturing PMI fell to 45.6 from 49.1 in November, its lowest since July 2012.

"With demand weak and confidence remaining subdued, input purchasing was pared back sharply and jobs were cut for the ninth successive month," said Rob Dobson, an economist at IHS Markit.

Spain's manufacturing sector contracted for the seventh month in a row in December, with production falling at its fastest rate since April 2013, weighed down by political and economic uncertainty at home and abroad. Markit's PMI of manufacturing companies edged down to 47.4 last month from 47.5 in November.

In Italy, manufacturing activity declined for a 15th month running in December and at the steepest rate for almost seven years, suggesting the economy will continue to struggle in the near term. The IHS Markit PMI fell to 46.2 from 47.6 in November, falling further below the 50 mark and posting the lowest reading since April 2013.

Polish manufacturing activity slipped again in December. The IHS Markit PMI for manufacturing rose to 48.0 from 46.7 in November.

Irish factory activity contracted slightly in December due to tumbling orders from overseas and sluggish hiring. The AIB IHS Markit PMI for the manufacturing sector edged down to 49.5 in December from 49.7 in November.

France and Greece, on the other hand, maintained an expanding pace. Manufacturing growth in France - the euro area's second-biggest economy - eased in December compared with the previous month. The final PMI for manufacturers slipped to 50.4 in December from 51.7 in November, IHS Markit said. November had marked a five-month high.

Greece was steady in December on the back of sustained growth in production and new orders, while firms took on workers at the fastest pace since April. Markit's PMI for manufacturing, which accounts for about 10 per cent of the economy, eased to 53.9 in December from 54.1 in November.


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