Eurozone crisis hits manufacturing


The underlying problems in the eurozone - the UK's biggest trade partner - were underlined today by figures showing the fifth successive monthly decline in the manufacturing sector.

The Markit/CIPS purchasing managers' index (PMI) survey, where a reading below 50 indicates a contraction, rose slightly to 46.9 in December, up from 46.4 the previous month. The average PMI reading in the final quarter of 2011 was nevertheless the weakest since the second quarter of 2009.

The decline in the sector came as companies faced declining order inflows, a slowing global economy and ongoing financial market turbulence, while the broader eurozone debt crisis continues to shatter confidence.

The eurozone crisis has frequently been cited as one of the greatest threats to economic stability in the UK, from Chancellor George Osborne to Bank of England Governor Sir Mervyn King, as 2012 is set to be a crunch year for the 17-nation bloc.

While nations such as Italy, Spain and Greece battle with vast levels of debt, the ongoing problems of weak growth and high unemployment persist.

Chris Williamson, chief economist at Markit, said: "Eurozone manufacturing is clearly undergoing another recession."

The survey found that output and new business fell across the consumer, investment and intermediate goods sectors and, for the second month in a row, all of the nations covered by the survey reported lower levels of output.

Germany, France, the Netherlands and Austria all saw only mild falls, while marked contractions were seen in Italy, Spain and Greece.

Elsewhere, the survey said a fall in production at euro area manufacturers reflected a seventh successive monthly decline in new orders received, which in turn reflected a combination of lower demand in domestic markets and reduced international trade.

Howard Archer, chief UK and European economist at IHS Global Insight, estimates that eurozone gross domestic product, a broad measure for the total economy, declined by 0.4% in the final quarter of the year.

He said: "Although showing modest improvement compared to November, the fifth successive and still appreciable contraction in manufacturing activity during December maintains concern that the sector is leading the eurozone into recession."

He added: "Eurozone manufacturers are now very much on the back foot and finding life extremely challenging as domestic demand is hit by tighter fiscal policy across the region, squeezed consumer purchasing power, and heightened eurozone sovereign debt tensions leading to tightening credit conditions and financial market turmoil."