Manufacturing in euro zone shrinks for fifth month

Euro zone manufacturing activity declined for a fifth consecutive month in December, although at a slightly slower rate than November’s 28-month record low, a survey showed on Monday, suggesting the decline would continue in the early months of 2012.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose slightly in December to 46.9 from November’s 46.4, but marked its fifth month below the 50 mark that divides growth from contraction. It was unchanged from an earlier preliminary reading.

Survey compiler Markit said levels of production and new orders fell in all of the euro zone countries covered by the survey for the second month running.

“Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single currency area at a quarterly rate of approximately 1.5 per cent in the final quarter of 2011,” said Chris Williamson, chief economist at Markit.

“The survey also points to a strong likelihood of further declines in the first quarter of the new year, with producers cutting back headcounts, inventories and purchasing.”

The euro zone economy is already stuck in a recession that will last until the second quarter of 2012, Reuters polls of economists suggested last month. They forecast the economy will proably see no growth this year.

Business and consumer confidence in the currency bloc has been eroded by a weakening global economy and by euro zone policymakers’ failure to make progress on resolving the euro zone debt crisis. Austerity measures imposed to try and cut high debt levels in the currency bloc risk further undermining euro zone economies this year, analysts say.

The new orders component of the December PMI survey also picked up slightly, to 43.5 in December from 42.4 the previous month, but it remained weak and Markit warned of a persistent and worrying divergence in order levels and output.

“Worryingly, new orders are falling at a far faster rate than manufacturers have been cutting output, meaning firms have been reliant on orders placed earlier in the year to sustain current production levels,” said Williamson.

“This is particularly evident in Germany, and suggests that operating capacity will be slashed in coming months unless demand revives.”

The manufacturing jobs market was virtually stagnant in December compared with November.

The euro zone unemployment rate edged up to 10.3 per cent in October, a figure that encompasses very high levels of joblessness in peripheral countries such as Spain and Greece with relatively firm labour markets in France and Germany.