The woes of the eurozone’s manufacturers are worsening, with a closely watched gauge of the export-dependent sector hitting its lowest level in more than six and a half years in July.
The purchasing managers’ index for manufacturing, produced by data firm IHS Markit, fell to 46.4 — a 79-month low. The July figure, down from a reading of 47.6 in June, is significantly below the crucial 50 level that marks steady growth.
The lacklustre figures follow disappointing numbers for factory activity in both of the eurozone’s two biggest economies. IHS data showed German manufacturing activity hitting a seven-year low, while in France it stalled after a promising June.
“With growth slowing, job creation fading and price pressures having fallen markedly compared to earlier in the year, the survey will give added impetus to calls for more aggressive stimulus from the European Central Bank,” said Chris Williamson, chief business economist at IHS.
While the reading is only the latest piece of evidence that manufacturing in the region remains under pressure from Brexit and trade frictions, there are few signs that this is feeding through into the dominant services sector.
Activity in Germany’s manufacturing sector underwent one of its most marked contractions since 2009, according to the IHS figures for that country, dropping to 43.1 from 45 the previous month. This was significantly below the expectations of economists in a Reuters poll, who had forecast an increase to 45.2.
Phil Smith, principal economist at IHS, said the German data raised “the risk of the euro area’s largest member state entering a mild technical recession”.
“The performance from Germany’s goods producers in July is the worst recorded by the survey in seven years, with the renewed weakness mainly stemming from an accelerated drop in export orders — the most marked seen in over a decade,” he said.
Meanwhile, French manufacturing industry also sputtered in July, slipping to a score 50 for the month, right on the line that separates expansion and contraction, having posted its first rise in four months in June. This was below economists’ expectations of 51.6 in a Reuters poll.
“Following a seven-month high in June, growth of the French private sector eased at the start of the third quarter. The slowdown was driven by softer new order growth, as sales at manufacturers slipped back into contraction territory at a time of ongoing geopolitical tensions,” said Elliot Kerr, economist at IHS Markit.
The overall PMI reading for the eurozone fell slightly, but remained in positive territory at 51.5. A separate reading for services was 53.3, down from 53.6 in June, but suggesting that growth in the sector — which is much more dependent on domestic demand — remains healthy.
