3 January 2003, 10:57  European Economies: Manufacturing Contracted for Fourth Month

/www.bloomberg.com/ By Jeffrey T. Lewis
London, Jan. 2 (Bloomberg) -- European manufacturing shrank for the fourth month in December as orders declined, adding to evidence the region's economy may contract.
An index based on a survey of purchasing managers at 2,500 companies for Group Plc fell to 48.4 last month from 49.5 in November. Analysts forecast a reading of 49.7. A level below 50 indicates a contraction.
Factory production, which accounts for about a fifth of the gross domestic product of the 12 nations using the euro, dropped in France and Germany last month. The $7 trillion economy, second in size to the U.S., may contract this quarter after growing the least in almost a decade last year, the European Union's executive branch predicts.
``The German economy will be slow to recover in 2003,'' said Michael Rogowski, president of the Federation of German Industry, which represents 107,000 companies, including Bayer AG and Siemens AG. Exports will provide a boost, ``though that won't be enough because the domestic economy is lagging behind.''
Germany, Europe's largest economy, probably grew 0.5 percent last year, the slowest pace since a 1993 recession. Chancellor Gerhard Schroeder's government predicts expansion of 1.5 percent this year, less than the 2.2 percent forecast for the 30 nations in the Organization for Economic Cooperation and Development.
A separate index gauging manufacturing in the U.K., one of three EU countries not to adopt the euro, fell to 49.5 from 50.1, the first contraction since July. New orders were down in Britain as well as in the countries sharing the single currency.
U.S. Manufacturing
Factories in the U.S. are faring better. Manufacturers in the world's largest economy stemmed a three-month slide in December, an industry report today showed.
The Institute for Supply Management's factory index rose to 54.7 from 49.2 in November. A reading of 50 is the break-even point between an expansion and a contraction. The index had been under 50 from September through November.
Siemens, Germany's biggest manufacturer, Deutsche Bank AG and other German companies have announced plans to cut more than 100,000 jobs. The nation's jobless rate rose to a four-year high of 4.2 million in November, or 10 percent.
Alcatel SA, Europe's largest phone-equipment maker, is shedding more than half its workforce as it tries to return to profit after six quarters of losses.
Higher Oil Prices
Companies are concerned about the impact of higher oil prices, a possible U.S.-led attack on Iraq and the increase in the value of the euro, which is making exports less attractive.
Crude oil for February settlement rose 55 cents, or 1.9 percent, to $29.26 a barrel on the International Petroleum Exchange in London as of 2:55 p.m. Brent, the benchmark for two- thirds of the world's oil, gained 44 percent last year, its best performance since 1999.
``If the price of oil goes up a lot, that won't help at all,'' said Luis Valero, director general of the Spanish Association of Car and Truck Makers, a lobby which represents companies such as Ford Motor Co., Volkswagen AG and Renault SA.
``At the moment it looks like car sales in Europe next year will be stable or possibly fall a bit,'' he added.
Crude oil was also boosted by continuing tensions over Iraq, the fourth-biggest OPEC producer in November, according to Bloomberg data. United Nations inspectors have been in Iraq since Nov. 27 checking on its weapons program. They will report to the Security Council at the end of this month.
The U.S. wants the UN to approve taking military action to force Iraq to disarm in the event the report shows Iraq failed to declare its weapons program. The Pentagon this week ordered the U.S. Army's 3rd Infantry Division to the Persian Gulf, joining about 35,000 U.S. troops already in the region.
``No investment decisions will be made before there's clarification to the situation in Iraq,'' Pekka Tsupari, a director of the Confederation of Finnish Industry and Employers, a lobby whose members include Nokia Oyj and Stora Enso Oyj.

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