Euro zone manufacturing shrank slightly less rapidly last month than in July when activity hit a five-year low but the sector was still hurt by the strong euro and high energy costs, a survey showed today.
The Markit Eurozone Purchasing Managers Index for the manufacturing sector recovered slightly to 47.6 from July's 47.4, marginally above economists' forecasts and the flash estimate of 47.5.
This marks the third consecutive month the index has been below the 50.0 mark that divides growth from contraction and will provide worrying reading for the European Central Bank as it faces a stuttering economy and persistently high inflation.
"The absolute level remains quite significantly below the stagnation level so we have to be cautious. That we have this rebound is far from an all-out recovery," said Gilles Moec at Bank of America.
The market was little moved by the data, which were final figures revised up only slightly from a flash estimate.
The euro zone economy shrank in the second quarter for the first time since monetary union and analysts see 1.4 per cent growth for 2008, a sharp slowdown from the 2.6 per cent seen in 2007.
The ECB cannot boost the economy by slashing interest rates as the United States Federal Reserve has done as its hands are tied to bringing inflation back to its 2 per cent target ceiling.
Official euro zone inflation was 3.8 per cent in August, according to data released on Friday, down from July's record 4.0 per cent but the region's business climate index declined more than expected to a three-year low. However, input prices in the survey recovered slightly to 71.2 from July's near four-year high of 73.8 as the cost of oil dropped to around $111 per barrel in mid-August from the highs approaching $150 seen in July.
Industrial activity across the big four economies also fell with Germany, the largest of the 15 nation bloc's economies, posting its first contraction in three years, while France recorded its third month in negative territory with a six-year low.
Italian manufacturing activity recovered from July's seven-year low but spent its sixth month in contraction while Spain also saw a recovery though staying well below the 50.0 mark at 42.4.
The backlogs of work figure was at 45.0, its lowest since this sub-index was first compiled in November 2002 while stocks of finished goods rose to 51.1, its highest since the survey began in June 1997. The euro zone's dominant services sector is expected to have remained in contraction at 48.2 when numbers are released on Wednesday.
Reuters