EU Manufacturing Drops, Causes Higher Unemployment

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November the first month since 2009 that every EU nation surveyed encountered falling output. (Image: Stock.xchng)
November the first month since 2009 that every EU nation surveyed encountered falling output. (Image: Stock.xchng)

ECONOMY

  • European PMI falls to 46.4, lowest rate since 2009
  • Manufacturers cut jobs due to low sales, unemployment rises to 10.3%
  • Czech and British factories slow output, German manufacturing declines
  • Reuters poll: 60% chance of EU recession

Europe's manufacturing sector fell in November at its fastest pace in 28 months, with production and new orders down to levels not seen since the height of the credit crisis in mid-2009.

Markit's, a financial services firm, Purchasing Managers' Index (PMI) for the Eurozone fell from 47.1 to 46.4 in November, marking the lowest PMI since the summer of 2009. A PMI under 50 marks a contraction, while anything above suggests growth. This is the Eurozone's fourth consecutive month below 50.

Manufacturing PMIs for every nation in the survey fell below 50, most of which had levels declining from the month prior. According to Markit's Chief Economist Chris Williamson, this is the first month since 2009 where every surveyed nation encountered falling output.

The European economy grew only 0.2% in Q3. According to a Reuters poll, the majority of the economists surveyed believe the European Central Bank will slash interest rates next week and will once again begin funding troubled banks.

EU inflation remained at 3% in November, above the ECB's target rate of 2%. Many manufacturers are cutting employees for the first time since April 2010 due to lower sales and a gloomy economic forecast. Unemployment in the European Union rose to 10.3% in October, with the employment index down from 50.5 to 49.9 in November.

Manufacturing activity for individual European nations has also fallen in recent months.

Czech, British Factories Decline

Manufacturing in the Czech Republic fell for the first time in two years this November, registering a PMI of 48.6, down from 51.7 in October.

Both export and domestic markets were sluggish in November, and production fell for the first time in 28 months due to a decline in new orders. New export contracts also dropped for the first time since August 2009.

British manufacturers experienced a contraction in November with the nation's PMI dropping from 47.8 in October to 47.6. Although economists were expecting a PMI of 47, November's rate decline was the fastest in over two years.

New orders fell for the fifth consecutive month, but at a slower pace than in the month prior. As a result of declining new orders, work backlogs have fallen the most since mid-2009. Output price inflation dropped in November due to weaker demand, strong competition, and a reduction in input costs. Due to the decline in orders, employment in manufacturing has fallen at its fastest pace since October 2009.

Other major European nations have also endured lower manufacturing activity: Italian factory activity has dropped for the fourth consecutive month, while France saw its lowest PMI since June 2009. Spain has undergone seven consecutive months of slower factory activity. A report from Germany revealed that the nation, which is Europe's backbone and economic powerhouse, has also been contracting its manufacturing sector at the fastest pace since 2009.

Economists predict in a Reuters poll that the Euro-bloc will have a 60% chance of entering another recession next year.

Key Statistics – European Economy (source: Eurostat)

  • Germany was the largest exporter to the US during the first two quarters of 2011 with €35 billion ($47 billion) in exported goods. The UK was the second largest exporter with €20 billion ($27 billion), and Italy placed third with €12 billion ($16 billion) shipped to the US.
  • In October, European annual inflation was at 3%. In November, economists expect little change.
  • In September 2011, new industrial orders increased by 1.6% for the Eurozone and 2.3% for the EU when compared with the year-earlier period.

By Nicole Manuel for
Nicole Manuel is a freelance economics, finance and blog writer with a degree in economics and over two years of experience.

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