By Paul Hannon
Activity in the euro zone's manufacturing sector slowed more
sharply than first estimated in August, with Italy joining France
in contraction, while German factories had their most sluggish
month since September of last year.
By contrast, economies that have been hit hardest by the
currency area's fiscal and banking crises showed signs of recovery,
with activity in Greece expanding again, while Ireland's factories
had their strongest month since late 1999.
However, fresh signs that the currency area's economy remains
mired in stagnation, with manufacturers cutting jobs in August,
will likely add to pressure on the European Central Bank to take
more dramatic stimulus measures to boost demand and inflation.
The headline measure from data firm Markit's monthly survey of
purchasing managers at more than 3,000 manufacturers fell to 50.7
from 51.8 in July, an indication that growth was very modest. A
reading above 50.0 for the Purchasing Managers Index indicates an
expansion in activity, while a reading below that level signals a
contraction.
The final measure was slightly lower than the preliminary
estimate of 50.8 released late last month.
Markit said the slowdown likely reflected the impact of rising
tensions between the European Union and Russia over the future of
Ukraine, as well as growing doubts about the effectiveness of
euro-zone economic policy and its likely future course.
"The braking effect of rising economic and geopolitical
uncertainties on manufacturers is becoming more visible," said Rob
Dobson, an economist at Markit. "This is also the case on the
demand front, with growth of new orders and new export business
both slowing in August."
The fresh decline in manufacturing activity in Italy adds to
concerns about the inability of the euro zone's third largest
economy to return to sustainable growth six years after the onset
of the financial crisis. The economy contracted for the second
straight quarter in the three months to June, while figures
released Friday showed its first annual decline in consumer prices
since 1959, by 0.1%, based on its national measure.
Activity in Spain's manufacturing sector slowed for the second
straight month in August, a sign that the economic recovery may be
losing some momentum.
Spain's economy grew at its fastest quarterly pace in six years
during the second quarter, with gross domestic product increasing
by 0.6% from the three months to March. The revival of the Spanish
economy--the euro zone's fourth largest--has been one of the few
positive developments for the currency area over the past nine
months.
The slowdown in manufacturing suggests that the revival may ease
in the third quarter, although their were indications in the survey
that it is set to persist: manufacturers continued to hire
additional workers, while new orders rose at the fastest pace since
April 2007.
A survey of Dutch manufacturers also released Monday recorded a
similar slowdown in activity during August. By contrast, a survey
of Irish manufacturers recorded an acceleration in activity
unmatched since December 1999.
The euro zone wasn't alone in experiencing weakness in
manufacturing, and may be dragging down the rest of Europe. U.K.
manufacturing activity slowed sharply, while activity declined in
Denmark, partly reflecting weak demand for their exports in the
euro zone.
Activity also slowed in Poland, the Czech Republic and Hungary.
That likely reflects the worsening conflict in Ukraine, but also
faltering activity in Germany, with which central European
manufacturing has close links.
"It seems that weaker demand from Germany has weighed on local
manufacturers to a much larger extent than either Ukraine or
Russia," said William Jackson, an economist at Capital Economics.
"After all, Germany is by far the largest export market for the
region's manufacturers and the fall in the region's PMIs has
mirrored the decline in the German survey."
Markit cut its estimate for Germany's PMI to 51.4 from 52.0, its
lowest level since September 2013.
Write to Paul Hannon at paul.hannon@wsj.com