Manufacturing in the eurozone contracted in April for the first time in 20 months, highlighting the scale of the economic slowdown across the region and adding to fears that some member states might even be facing recession, according to a survey on Monday. The fall in the eurozone purchasing managers' index for the second month running, from 50.4 in March to 49.2, is the latest evidence of a significant slowdown in growth in the second quarter of this year, largely as a result of the energy-price shock.
France and Italy experienced a particularly sharp deterioration. Germany had a further weakening in business conditions.
The figures, based on data from 3,000 manufacturers and compiled by NTC Research, follow gloomy surveys of consumer and business confidence in recent weeks. They have dashed hopes of an early return of the modest eurozone economic recovery in the first half of last year that fizzled out by the end of the year.
Ralph Solveen, economist at Commerzbank in Frankfurt, said: “The economic fall-out from high oil prices is evidently greater than expected, especially in the eurozone.”
Separately, an Institute for Supply Management report showed US factory activity slowing. A significant slowdown in the US economy, a main market for European exports, would have serious knock-on effects on the eurozone.
The latest data came amid a growing political debate about Europe's economic problems. In Germany, private equity funds and hedge funds have been singled out for attack by the ruling Social Democratic party for pursuing “anti-social” corporate restructuring. In Italy the blame is laid on Chinese imports and the monetary policy of the European Central Bank.
A decline in the eurozone purchasing managers' index below 50 indicates a contraction in manufacturing. Revised gross domestic product data last week showed Germany suffered two successive quarters of negative growth last year. Purchasing managers' indices for Italy have pointed to a contraction in manufacturing for some time.
Lorenzo Codogno, economist at Bank of America, said activity in services was less volatile and a eurozone recession still had “quite a low probability”.
Nevertheless, the sharp fall in the French manufacturing outlook was particularly worrying, economists said, because France's economy had been among the best-performing in the eurozone, buoyed by a strong housing market and government incentives for consumer spending. “France was supporting the eurozone. Now it is significantly less supportive,” he said. The ECB is expected tomorrow to hold its main interest rate unchanged for the 23rd month running. Jean-Claude Trichet, president, has acknowledged there are “no clear signs” of an underlying strengthening in economic growth.
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