LONDON, Feb 2 - The euro zone's manufacturing sector grew a little faster in January thanks to buoyant worldwide demand but the euro's strength forced companies to cut jobs to stay competitive, a major survey showed. The survey of 3,000 companies showed overall manufacturing activity at a three-year high and robust growth in new orders. However, manufacturers cut more jobs than they created, seeking to hold down their export prices by boosting productivity. The Eurozone Purchasing Managers' Index rose to 52.5 from 52.4, showing the sector growing at a stronger pace, albeit not as fast as the consensus forecast of 52.9. Job weakness held back the overall index. "There's a big focus on cost reduction in the euro area," said Chris Williamson, chief economist at NTC Research which compiles the survey for . "Order books are expanding and manufacturers are trying to meet those orders while simultaneously allowing staff levels to fall. That's the big impact (of euro strength) that we're seeing at the moment: the failure of this recovery to create jobs." The euro hit a record high of nearly $1.29 on January 12 but has eased since. A poll last week forecast the European Central Bank will wait until late this year or early 2005 before raising interest rates from 2.0 percent, but a rate cut could be on the cards if the euro resumes its rise against the dollar.
SAVED BY GLOBAL DEMAND
The dollar's weakness has helped U.S. exporters and the comparable U.S. manufacturing index hit a 20-year high at 63.4 in December. The U.S. index for January is due at 1500 GMT on Monday. Booming global demand is offsetting the euro's strength and the forward-looking new orders index for the euro zone rose to 55.4 in January -- its strongest showing since September 2000 -- from 55.1 in December. Although the employment index was unchanged at 48.4, the output index rose to 54.6 from 54.5. "In spite of the strong euro, it's worth reminding ourselves that the rate of growth in industrial production in the euro zone, as signalled by the output index, is in excess of two percent year-on-year, and perhaps quite significantly above two percent," Williamson said. "If this setting can continue, 2004 could be a good year for continental Europe." Even so, jobs remain a worry because a weak labour market deters consumers from spending. The manufacturing survey showed domestic demand for consumer goods remained relatively weak in all the major euro zone economies -- especially Italy. An accounting scandal at global dairy group Parmalat has hurt many Italian savers and Williamson said that, combined with transport strikes and the strong euro, was in turn hurting consumer goods makers. "It's a triple whammy," he said.
INTENSE PRICE COMPETITION
The Italian PMI eased to 51.1 from 51.9 and the Italian jobs index slipped back into contraction from growth. The overall index for Germany was unchanged at 53.0, but the French index showed stronger growth at 53.5 from 51.9. Williamson said capital goods exports, particularly from Germany, were shielded from euro strength by strong demand from U.S. and Asian manufacturers for specialist European plant and equipment. French manufacturers were also benefiting from relatively strong domestic demand for consumer goods. But manufacturers in Asia and elsewhere are creating intense price competition for euro zone companies both at home and abroad, especially in the consumer goods market. At the same time, euro zone manufacturers are paying more for raw materials. Even though most of these imports are dollar-priced, euro strength is failing to fully offset price rises driven by supply shortages, particularly for metals. The euro zone input price index rose to 54.6 in January -- the highest since April 2003 -- from 53.6 in December. All this pressure to contain costs looks set to keep a lid on manufacturing jobs growth in the euro zone. "We don't expect any significant growth of employment in the foreseeable future, say for the first half of this year," Williamson. "We'd hope that by spring it might have stabilised: job-cutting will have halted."//