European manufacturing decline as 2018 ends

European manufacturing decline
© iStock/maki_shmaki

In a broad slowdown in activity across the industry, a European manufacturing decline appears to have taken hold of the latter end of 2018.

IHS Markit’s Purchasing Managers’ Index (PMI) for manufacturing in December fell to 51.4 from 51.8 in November, in the fifth consecutive month the PMI showed a European manufacturing decline. Readings below 50 in the PMI show industries actively shrinking, rather than the growth indicated by numbers above 50.

December’s reading marked the lowest for European factories since February 2016, as new orders fell by the highest rate since 2014; hiring of new employees was minimal; and backlogs were run down for a fourth month. Italy and France showed the most drastic European manufacturing decline, with both countries individually receiving PMI readings below 50 – the first time France has fallen into contraction in 27 months – while Germany and Spain, the EU’s strongest manufacturers, showed their weakest manufacturing growth in over two years.

A poll conducted in December by Reuters suggested the potential of a Europe-wide recession had risen from 15 per cent to 20 per cent, with firms signalling they were less optimistic than at any time in the last six years. Amid concerns over further European manufacturing decline in coming months, the future output index has dropped from 56.3 to 56.0.

Chris Williamson, chief business economist at IHS Markit, said of the European manufacturing decline: “A disappointing December rounds off a year in which a manufacturing boom faded away to near-stagnation. The weakness of the recent survey data in fact raises the possibility that the goods producing sector could even act as a drag on the overall economy in the fourth quarter, representing a marked contrast to the growth surge seen this time last year. Continued worries over global trade, ongoing political uncertainties and tightening financial conditions all served to undermine confidence during December.”

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