March 1, 2012

Eurozone Manufacturing Still Falling, but Less

Peripheral countries show steep declines; Greece sets new record lows

The purchasing managers' index for February continued on a downward slope, albeit not quite so steeply as Germany and the Netherlands reported gains and France stabilized. But for peripheral eurozone countries the story was different, with both Spain and Italy falling and Greece setting a new record for drops in both new output and orders.

According to the Markit Economics PMI for February, the data did not change its estimate from its flash report earlier in the month at 49.0; however, even as Ireland eked out a small improvement–falling by the least in four months–Greece continued to tumble. Spain and Italy were down substantially as well, although Italy had eased somewhat from its previous pace.

Job creation in Germany was down substantially, darkening the picture for what has been one of the most dependable economic pictures in Europe. It fell sharply to record the weakest gains in its current two-year rise.

In the report, Chris Williamson, chief economist at Markit, said that despite a slight improvement in output, new orders were still down. Companies therefore postponed hiring, opting instead to cut costs and shore up against possible coming hard times.

Williamson said, “The periphery remains the major concern. The rate of decline of the Greek manufacturing economy accelerated further, with output and orders dropping at the fastest rates since the survey began in 1999. Steep rates of decline were also evident in Spain and Italy, although an easing in the rate of decline in the latter raises hope that the worst may be over for the region’s third-largest economy.”

He added, “Whether the eurozone will sink back into recession in the first quarter remains highly uncertain, and will probably only be avoided if a substantial improvement in the business situation is seen in March.”

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