Recent survey points to a weakening EU manufacturing trend

Eurozone activity is losing momentum which is likely to weigh down on trade and shipping activity, said analysts
By Patrick Burnson, Executive Editor
September 22, 2011 - SCMR Editorial

The overall contraction in Eurozone manufacturing and services activity in September highlights the recent marked faltering in economic activity across the region and suggests that GDP growth in the third quarter could even struggle to match the 0.2 percent quarter-on-quarter rate achieved in the second quarter.

According to IHS Global Insight Chief U.K. and European Economist, Howard Archer, contracting new orders and export orders, falling backlogs of work and deteriorating confidence bode ill for activity in the fourth quarter. Waning employment growth adds to the worrying picture.

“Eurozone activity is losing momentum which is likely to weigh down on trade and, presumably, shipping activity,” Archer told SCMR in an interview from London this morning.

The surveys pile pressure on the European Central Bank (ECB) to quickly reverse its recent monetary policy tightening cycle rather than just halting it, with a near-term interest rate cut. Falling prices charged in the services and manufacturing sectors combined in September add to the evidence that Eurozone inflationary risks are rapidly dwindling and give the ECB scope to act.

The September purchasing managers’ surveys were even weaker than feared, adding to the recent stream of dismal Eurozone economic news. They show joint Eurozone manufacturing and services output contracting for the first time since July 2009. 

The previously buoyant German economy saw manufacturing and services expansion slow to a crawl in September, while growth was similarly marginal in France following a sharp loss of momentum in September itself.

The Markit Group Limited – a global financial information services company with over 2300 employees – did not release any surveys for the other countries, but they reported that “the rest of the single currency area suffered the steepest contraction for over two years.”

According to IHS, Eurozone economic activity is clearly being held back by tighter fiscal policy increasingly kicking in across the region, and the major hit to confidence coming from the heightened sovereign debt tensions and financial market turmoil. 

Also critically, slower global growth is now hitting foreign demand for Eurozone goods and services hard as was evident in the sharp contraction in manufacturing export orders evident in the September manufacturing PMI.

Manufacturing activity has also come under pressure from the waning of inventory rebuilding and high input costs. At least though, input prices have eased recently.

Not only did combined Eurozone services and manufacturing output contract in September, but new orders growth contracted significantly, as did backlogs of work. Meanwhile, business expectations in the services sector were at a 30-month low. Employment growth fell back to a 15-month low, adding to the recent deteriorating news on Eurozone labor markets which has worrying implications for consumer spending.

Better news saw input prices rise at the slowest rate for 22 months in September. Meanwhile, output prices fell marginally for the first time since July 2010. This reflected companies’ reduced pricing power in the face of weakened demand, as well as waning input prices.



About the Author

image
Patrick Burnson
Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).

Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Almost all companies today are aware of their labor or material costs... but what about energy consumption? It all comes down to having the energy data needed to determine what actions you must take to improve. The payoff is worth it, as insight into energy data allows you to make more valuable, relevant operating decisions.

With lower energy prices sparking domestic economic gains, coupled with solid manufacturing and industrial production activity, improving jobs numbers, and a GDP number that shows progress, there is, or there should be, much to be enthused about when it comes to the economy and the economic recovery, which has been raised and discussed and dissected from basically every angle possible, it seems. But that enthusiasm regarding the economy needs to be tempered, because big headline themes seldom tell the full story at all really.

The annualized turnover rate for large truckload carriers in the third quarter rose one percentage point to 97 percent, according to the ATA.

The Pacific Maritime Association (PMA), representing employers at 29 ports, and the International Longshore and Warehouse Union (ILWU), which represents 20,000 dockworkers, have come to a tentative agreement on a key issue in ongoing contract negotiations.

Diesel prices continued their ongoing decline, with the average price per gallon falling 6.7 cents to $2.866 per gallon, according to data issued this week by the Department of Energy’s Energy Information Administration (EIA).

Article Topics

News · Global · Supply Chain · Procurement · All topics

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. Contact Patrick Burnson

Comments

Post a comment
Commenting is not available in this channel entry.