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Euro zone factory downturn takes root in core in July - PMI

Reuters  |  By Jonathan Cable</p>LONDON  

london  August 1, 2012, 15:25 IST

london  08 01, 2012, 15:30 IST


The zone's manufacturing sector contracted for the 11th straight month July as output and new orders plummeted, a business survey found on Wednesday.

The data, which showed the is deepening its roots the core, will provide grim reading for policymakers who are battling to contain a debt crisis that has raged across the continent.

Markit's Eurozone Purchasing Managers' Index (PMI) for the manufacturing sector fell to 44.0, the lowest reading since June 2009 and below a flash reading of 44.1 and June's 45.1.

The output index sank to 43.4, the lowest since May 2009, under June's 44.7 and an earlier flash 43.6. Markit said it was line with the official measure of production falling at a quarterly rate of over 1 percent.

"The manufacturing sector's woes intensified again July. Manufacturing therefore looks to be on course to act as a major drag on economic growth the third quarter, as the faces a deepening slide back into recession," said Chris Williamson at Markit.

After stagnating the first quarter, narrowly avoiding a technical recession, a raft of gloomy data pushed economists a Reuters poll last month to predict a contraction the second and third quarters.

a bid to spur growth the European Central Bank cut interest rates to a record low of 0.75 percent June and is expected to cut them again to 0.5 percent before the year is out.

At its policy meeting on Thursday, it is expected to restart its dormant government bond buying programme with the aim of lowering Spanish and Italian government bond yields, which have reached levels unsustainable the long-term.

Bank President Mario Draghi vowed last week that "the ECB is ready to do whatever it to preserve the euro".


Earlier data from Germany, Europe's largest economy, showed its manufacturing sector contracted at its fastest pace three years last month and it was a similar story neighbouring France.

Spain, which slid deeper into recession the second quarter, saw the 15th straight month of contraction, while Italy chalked up a year contractionary territory.

The PMI for Greece, where the debt crisis began, has been below 50 since September 2009. Ireland was the only country to show signs of emerging from the downturn, Markit said, where its PMI was above 50 for the fifth month.

Factories across the cut prices at the fastest pace since early 2010, but the new orders index still fell to 42.8 from the previous month's 43.5 and has only been lower once over three years. New export orders were at an eight-month low.

"The current weakness of global economic growth suggests that all producers face a challenging environment export markets as well as at home," Williamson said.

Some of the output was generated by firms running down backlogs for the 14th consecutive month and workforces were cut for the sixth month to reduce costs.

Unemployment across the bloc rose to a euro-era high of 11.2 percent June, official data showed on Tuesday.

- Detailed PMI data are only available under licence fromMarkit and customers need to apply to Markit for a licence. Tosubscribe to the full data, click on the link below:

For further information, please phone Markit on +44 20 7260 2454, or email (Editing by Hugh Lawson)

First Published: Wed, August 01 2012. 15:25 IST