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Euro zone July factory growth at 17-month low

Final data from the RBS/NTC Eurozone Manufacturing Purchasing Managers Index (PMI) survey showed the index slipped to a 17-month low of 54.9 in July from 55.6 in June.

This was slightly above last week’s flash estimate of 54.8, which economists had predicted would stay unchanged for the final figure. Any number above 50 means expansion, any below 50 contraction.

The manufacturing growth slowdown was broad-based, with the survey showing a moderation across all the big four economies of Germany, France, Italy and Spain. But there was significant disparity over the pace of export growth between countries.

Markets shrugged off the data and it had no effect on the euro as it did not shake market conviction that the European Central Bank will tighten credit again this year.

“The ECB would need to see a stronger decline in sentiment indicators to stop raising rates. There are more risks from financial markets that could lead to hesitation. But we still expect them to get to 4.5 percent in December,” said Matthias Rubisch at Commerzbank.

Similar data on the UK on Wednesday showed the strongest pace of expansion in three years and the fastest rises in prices charged since the survey records began in 1992.

Export orders holding up

RBS, which sponsors the data, said the PMI was still consistent with industrial production growth of around 3 percent this year. Should the PMI stay at these levels in coming months, another ECB rate hike by year-end could be less certain.

“If the PMI continues to moderate at this pace for the next six months the ECB will not go to 4.5 percent by the end of the year,” said Jacques Cailloux, chief euro area economist at RBS.

Output growth across the euro zone fell to an 18-month low of 56.0 in July, though this was slightly above the 55.9 flash reading. Italian manufacturing output growth hit a 21-month low while France touched its weakest in six months.

The pace of growth of new export orders slipped slightly in July to 54.5 from 54.8, with a higher euro appearing to hurt orders in France more than in Germany, Italy and Spain. French new export order growth was the lowest in more than two years.

Yet both Germany and Italy were largely unaffected, with orders holding on to robust levels seen last month and staying in line with the average for the first half of the year. And Spanish export order growth dipped only slightly.

High oil prices, which are now close to last year’s record high above $78, also hurt manufacturers in July with the input prices index rallying to a nine-month high of 67.1.

But the output prices index rose only marginally to 54.5 in July from June’s 16-month low of 54.3 and just above the 54.4 seen in the flash reading for July.

The official flash reading of euro zone inflation dipped unexpectedly in July to 1.8 percent from 1.9 percent.

The Euro zone job market, meanwhile, remained strong. The employment index held close to a six and a half year high at 53.5, though slightly off the 53.7 recorded the previous month. Again, this was just above the 53.4 flash result.