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European Manufacturing Slump Keeps Economy Under Pressure

Manufacturing in the euro area shrank for a sixth month at the start of the third quarter, dragged down by Germany’s worst slump in seven years.

The downbeat figures come in the wake of reports showing slower economic growth in France, Spain and the euro area, with Italy stagnating. IHS Markit said its euro zone manufacturing Purchasing Managers Index fell to 46.5 in July from 47.6 in June.

While part of the weakness is linked to troubles in the automotive industry, a continued downturn could spell deeper trouble, and spread to other parts of the economy. As companies respond to falling demand, manufacturing jobs are being cut at the fastest pace in six years, prices are being lowered and optimism is deteriorating.

“The euro-zone PMI dashboard is a sea of red, with all lights warning on the deteriorating health of the region’s manufacturers,” said Chris Williamson, chief business economist at IHS Markit.

Germany’s Schaeffler AG, a supplier to carmakers, this week cut its forecast and now sees revenue falling this year. France’s Renault SA also lowered its outlook.

The European Central Bank has already begun work on new stimulus to prop up the economy and boost inflation. It’s looking into interest-rate cuts and asset purchases, and is expected to announce new stimulus at its meeting in September.

In Germany, the factory gauge fell to 43.2 in July from 45 in June. A measure of export orders dropped to the lowest since 2009. But manufacturing weakness is apparent across the region, with output falling in Italy, France, Spain, Ireland and Austria.

Respondents to the survey cited trade wars, Brexit and worries about slower economic growth as factors behind subdued current demand and weaker confidence.
Source: Bloomberg

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