While it was the US NFP data that really beat up the markets over the weekend, and there was some market supportive news from Ireland with a ‘yes’ vote in the referendum, Europe was still able to deliver a king hit of its own with the latest European manufacturing PMI data that clearly showed contagion from the periphery has made its way to the core. Not that this is unexpected. The major issue going forward, however, is that when strength is still noted, as in Ireland and some parts of German manufacturing, it is on the back of US activity:
Final Markit Eurozone Manufacturing PMI at 45.1, lowest reading since mid-2009
Output, demand and labour market weakness spreading from peripheral to core nations
Price pressures subsiding
The Eurozone manufacturing sector downturn deepened during May, as steep drops in output and new orders led to further job losses.
The seasonally adjusted Markit Eurozone Manufacturing PMI® fell to a near three-year low of 45.1 in May, down from 45.9 in April and little- changed from the earlier flash estimate of 45.0. The PMI has signalled contraction in each of the past ten months.
Ireland was the only nation to signal an expansion of even modest note in May, as the Austrian PMI slipped closer to stagnation and all the other nations covered by the survey saw contractions.
PMIs for Germany, France and Spain all fell to their lowest levels since mid-2009, while the downturn in the Netherlands accelerated to its fastest in five months. Rates of contraction eased slightly in Italy and Greece, but remained steeper than the euro area average. Greece moved off the bottom of the euro PMI league table for the first time since January 2010, replaced by Spain.
May data highlighted a continued worsening of business conditions across the German manufacturing sector. At 45.2, down from 46.2 in April, the final seasonally adjusted Markit/BME Germany Purchasing Managers’ Index® (PMI®) signalled the sharpest deterioration of operating conditions since June 2009. The index has now posted below the neutral 50.0 value for three months running, with the latest figure primarily reflecting marked reductions in output and new work.
Manufacturers in Germany signalled a decline in output levels for the second consecutive month and the sharpest rate of reduction for almost three years. Anecdotal evidence from survey respondents suggested that weaker client demand and efforts to prevent unwanted inventory building had contributed to the marked fall in production.
New business levels dropped sharply in May, thereby extending the current period of contraction to 11 months. There were a number of reports that concerns among clients about the global economic outlook had led to more cautious spending patterns in the latest survey period. May data pointed to a steep fall in new export orders, and the rate of decline was the fastest for six months. Survey respondents generally noted that subdued demand within Europe and signs of a slowdown in Asia had offset improved export sales to the US.
Operating conditions at Irish manufacturing firms improved again in May as output returned to growth and the expansion in new business was sustained. Increased workloads encouraged companies to take on extra staff, and the rate of job creation was solid during the month. Meanwhile, cost inflation remained elevated amid rising prices for fuel and other oil-related products.
The seasonally adjusted NCB Purchasing Managers’ Index® (PMI®) – an indicator designed to provide a single figure measure of the health of the manufacturing industry – rose to 51.2 in May, from 50.1 in the previous month. The headline index has now posted above the 50.0 no-change mark in each of the past three months.
New business at Irish manufacturing firms increased for a fourth successive month in May, with respondents mainly linking growth to higher new export orders. New business from abroad rose at a solid pace as firms were reportedly able to generate sales from outside the eurozone.
PMI drops amid faster falls in output and new orders
Further steep reduction in employment
Input cost inflation slows sharply
The decline in the Spanish manufacturing sector intensified again in May as both output and new orders fell at rates only exceeded by the 2008/09 downturn. A lack of demand led firms to reduce their input buying, which in turn subdued pricing power at suppliers and brought cost inflation down markedly. Meanwhile, employment continued to decline at a substantial pace.
The seasonally adjusted Markit Purchasing Managers’ Index® (PMI®) – a composite indicator designed to measure the performance of the manufacturing economy – posted 42.0 in May, down from the reading of 43.5 in April. This signalled a sharp deterioration in business conditions in the sector, and the most marked since May 2009.
Output fell at a substantial pace that was the strongest in more than three years as the rate of decline quickened for the fourth successive month. Where production decreased, respondents attributed this to declining new business.
Overall new business fell substantially in May, with the rate of contraction the fastest since April 2009. Panellists reported that domestic demand had decreased particularly sharply over the month. New export orders also declined, with respondents highlighting weakness in the eurozone.
Headline index rises to eight-month high, but remains well below 50.0
Output, new orders and purchasing all cut at slower rates
Further job losses as lack of work reduces labour requirements
Another difficult month for Greek manufacturers was signalled by May’s survey. Despite relative rates of contraction easing over the month, output, new orders, purchasing and employment were again all markedly reduced across the sector.
The Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single- figure snapshot of the performance of the manufacturing economy – posted 43.1 in May, an improvement on April’s 40.7 and an eight-month high. However, remaining well below the 50.0 no- change mark that separates growth from contraction, the PMI continued to signal a sharp deterioration in operating conditions.
Output and new orders declined at their slowest rates for ten and eight months respectively in May. However, amid reports that the recession, political instability and ongoing difficulties accessing finance were all serving to undermine demand, rates of decline remained sharp.
May’s survey also indicated a sharp drop off in export sales, with companies noting that operating conditions in key trading partners had deteriorated. The fall in new export orders was the steepest recorded for two years.
Staffing levels decline at fastest pace since September 2009
Price pressures ease further
French manufacturers reported a further in business conditions during May. The headline Purchasing Managers’ Index® (PMI®) – a seasonally adjusted index designed to measure the performance of the manufacturing economy – recorded 44.7, down from 46.9 in April. That was its lowest reading in three years.
The drop in the PMI during May reflected weaker contributions from all five of its components, namely output, new orders, employment, stocks of purchases and suppliers’ delivery times.
A key contributor to the fragile performance of the French manufacturing sector in the latest survey period was a further decrease in the level of incoming new work received by firms. The latest fall in new orders was the eleventh in consecutive months and the sharpest since April 2009. Data suggested that the domestic market was the main source of weakness, as total new orders fell much more sharply than export sales.
With new orders down, French manufacturers reduced output further in May. The latest drop in production was the sharpest in three years.
Outstanding business meanwhile declined for the ninth time in the past ten months, while firms cut employment further. The pace of job shedding quickened to the sharpest since September 2009.
PMI comfortably below 50.0 on marked falls in output and new orders
Employment down, but at slower rate
Input cost inflation slowest in five months
Italy’s manufacturing sector remained in contraction during May. Output levels, new orders and employment all decreased over the month, albeit all at slightly reduced rates. Falling new export orders added to manufacturers’ troubles, although cost pressures eased to the weakest since last December amid weakening demand for inputs.
At 44.8, up slightly from April’s 6-month low of 43.8, the seasonally adjusted Markit/ADACI Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – signalled another marked deterioration in business conditions facing Italian manufacturers in May. The health of Italy’s goods producing sector has now been in decline for ten straight months.
May saw new orders received by manufacturers in Italy fall sharply, and at a rate that was only fractionally slower than April’s three-year record contraction. Anecdotal evidence pointed to weakness in both domestic and international markets, with new export orders falling solidly for the second month running.
As you can see from a majority of the reports, and we have seen across southern Europe over the last 2 years, the fall in demand for goods is continuing to lead to a fall in demand for labour. It is therefore no real surprise that Europe continues to break records that it would rather not:
Euro zone unemployment has hit a record high, and job losses are likely to keep climbing as the bloc’s devastating debt crisis eats away at businesses’ ability to hire workers while indebted governments continue to cut staff.
Around 17.4 million people were out of work in the 17-nation euro zone in April, or 11 percent of the working population, the highest level since records began in 1995, the EU’s statistics office Eurostat said on Friday.
“This 11 percent level is going to continue edging up in the coming months and probably until the end of the year,” said Francois Cabau, an economist at Barclays Capital who sees the euro zone’s economy contracting 0.1 percent this year.
“The economic activity situation tells you the story of the labour market. There’s been basically no economic growth since the fourth quarter of last year and indicators are pointing to very weak growth momentum for the second quarter,” he said.
And as we know the youth of the periphery continue to take the brunt:
And if that wasn’t all bad enough, there is also Cyprus:
Cyprus looks increasingly set to become the fourth euro-zone country to seek financial aid under Europe’s temporary bailout fund, as early as this month, as it scrambles to protect its banking system from Greece’s widening financial crisis that is threatening to engulf its tiny island neighbor.
The fallout from the Athens crisis already has forced Cyprus’s second biggest bank to seek government support for a planned multibillion euro recapitalization, something that will push the island’s public finances deep into the red and cause it to miss this year’s budget targets.
Cyprus—faced with soaring bond yields hovering around 14% on the 10-year bond, and with its debt considered junk status by two of the world’s leading ratings firms—has few places to turn to cover its financing needs.
Officially, the economy is expected to grow 0.8% this year, according to government projections, but the International Monetary Funds says a 1.2% contraction is more likely.
Late last year, the country negotiated a €2.5 billion ($3.1 billion) bilateral loan from Russia. Now, Cyprus is in talks with China for another bilateral loan, of an undisclosed amount, that looks unlikely to materialize in time.
I’m not sure exactly what Barroso, Draghi, Juncker and Van Rompuy are coming up with but it is going to have to be very impressive.
