Eurozone factories stuck in a rut as Asia shows tentative signs of recovery

Factories in the eurozone remained mired in contraction last month, surveys showed, with the data suggesting a recovery could be some way off but Asian and British manufacturers showed tentative signs of recovery.

However, analysts say prospects of slowing US growth, which is likely to lead to interest rate cuts by the Federal Reserve this month, and uncertainty over the outcome of the presidential election there cloud the trade outlook.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, stood at 45.8 in August, just ahead of a 45.6 preliminary estimate but well below the 50 mark separating growth from contraction.

“The final August manufacturing PMI reading was yet another indication the recovery of the industrial sector will neither be immediate nor vigorous, as the eurozone index remains stuck in contractionary territory,” said Riccardo Marcelli Fabiani at Oxford Economics. 

A PMI covering new orders sank to its lowest since December and demand from abroad also fell at the fastest rate this year.
That decline came as eurozone manufacturers raised their prices for the first time in 16 months, driven by factories in France, the Netherlands, Greece and Italy.

Still, overall inflation in the currency bloc fell to a three-year low of 2.2% in August, preliminary official data showed on Friday, strengthening the case for further policy easing from the European Central Bank.
 
It will cut its deposit rate twice more this year, in September and December, according to more than 80% of economists in an August Reuters poll, fewer reductions than markets currently expect.

The downturn in German manufacturing accelerated and in France activity contracted at the fastest pace since January.

But in Britain factories had their strongest month in more than two years as demand at home offset a fall in exports, adding to signs of momentum in the economy.

That poses a favourable backdrop for the new government of Prime Minister Keir Starmer who is seeking to speed up growth. [Reuters]