Indexes suggest euro manufacturing slipping back into recession

A SERIES of “grim” business surveys, issued yesterday, showed the euro area’s debt crisis was dragging its economy back into recession.

The final Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October, which gauges changes in activity levels across thousands of euro zone manufacturers, fell to 47.1, revised down from a preliminary reading of 47.3 and down from 48.5 in September.

Ireland was the only euro zone economy not to report a fall in manufacturing activity last month. The Irish index, published on Tuesday, showed that Ireland’s production expanded fractionally in October on the back of an upturn in new orders – the first such increase in five months.

The survey bucked a euro area-wide trend indicating the downturn in manufacturing was even deeper than previously thought.

This marks the third consecutive month the European manufacturing PMI has been below the 50 level that divides contraction from growth. Output and new orders indexes plunged to levels not seen since mid-2009.

The survey suggests the crisis is choking euro area business and, along with news that German unemployment unexpectedly rose for the first time in nearly two years to 7 per cent, it adds pressure on the European Central Bank to cut interest rates.

The survey’s factory output measure fell to 46.6 in October from 49.6. Germany, the economic engine of the euro zone economy, saw manufacturing activity contract for the first time in just over two years.

Spanish factory activity shrank for a sixth straight month, while conditions in Italy, increasingly the focal point of worry in the still-raging euro zone debt crisis, deteriorated much more sharply than expected to a 28-month low.

The Italy manufacturing PMI fell 5 points to 43.3, the biggest one-month fall since the survey began in 1997, suggesting an economy deep in recession. French manufacturing was also on the back foot in October, with new orders drying up and output falling.

For the euro zone as a whole, the new orders index fell for the fifth month running, plummeting to 43.4, the fastest rate of decline since May 2009. While firms hired more workers for the 18th consecutive month, hiring was the weakest since June 2010. Euro zone unemployment rose to 10.2 per cent in September, nudged up by Spain, where unemployment reached 22.6 per cent. Inflation is running at 3 per cent, well above the ECB’s preferred 2.0 per cent ceiling.

Manufacturing for the euro zone’s key trading partners is also slowing, showed similar reports. – (Additional reporting by Reuters)