Eurozone factory activity contracted in Aug as cosumers stay cautious

Published Thu, Sep 1, 2022 · 05:14 PM

MANUFACTURING activity across the eurozone shrank for a second month in August, according to a survey which showed weak demand meant factories were unable to sell as much as they made and built up stocks of finished goods at a record pace.

As in many other parts of the world, Europe is enduring a cost of living crisis, and faced with soaring energy and food bills many consumers are reining in their spending.

S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) dipped to 49.6 in August from July’s 49.8, below a preliminary reading of 49.7 and further below the 50 mark separating growth from contraction.

An index measuring output, which feeds into a composite PMI due on Monday (Sep 5) and seen as a good guide to economic health, nudged up to 46.5 from 46.3 but marked its third month of sub-50 readings.

“The euro area’s beleaguered manufacturers reported a further steep drop in production in August, meaning output has now fallen for 3 successive months to add to the likelihood of GDP falling in the third quarter,” said Chris Williamson, chief business economist at S&P Global.

“Forward-looking indicators suggest that the downturn is likely to intensify - potentially markedly - in coming months, meaning recession risks have risen.”

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The new orders index remained well below breakeven, holdings of raw materials increased again, backlogs of work were run down and stockpiles of completed products increased at a record pace.

A stocks of finished goods index climbed to 53.3 from 52.5, the highest since the survey began in mid-1997.

“Falling sales have not only led increasing numbers of factories to cut production, but have also meant warehouses are filling with unsold stock to a degree unprecedented in the survey’s 25-year history,” Williamson said.

“Similarly, raw material inventories are accumulating due to the sudden and unexpected drop in production volumes.” REUTERS

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