Euro zone manufacturing expanded at its slowest pace in seven months in September, as the global economic slowdown knocked demand for exports and high oil prices weighed on firms' costs, a survey of some 3,000 firms showed. The Eurozone Purchasing Managers' Index slipped for the second consecutive month to 53.1 from 53.9 in August. The index stayed above the 50 watermark dividing contraction from growth for the 13th month, but came in below the consensus forecast of 53.7. "The principal cause of the slower (manufacturing) growth is a general easing in the global economy," said Chris Williamson, chief economist at NTC Research, which compiles the data for . "This is causing export growth to moderate". "But although the rate of growth has declined, it's still at a reasonable level. We've had two months of downturn and that's too early to reliably indicate a turning point."
Softer demand from China and other parts of Asia such as Taiwan and Korea, however, may fuel fears the fragile euro zone recovery will falter as it is heavily dependent on exports. Export demand from the United States also softened and the equivalent survey from the Institute of Supply Management will be eyed for more clues on the state of the U.S. economy. The September ISM Manufacturing index, due at 1400 GMT on Friday, is forecast to slip to 58.0 from 59.0 in August. Manufacturing growth also slowed in Japan as growth in new export orders, in particular from China, faltered. The headline index, published on Thursday, edged lower to 53.6 in September from 54.9 the previous month, the slowest rate of growth in a year. The euro zone output and new orders indices both fell for the second month running as export demand dipped and domestic demand remained subdued.
Of the eight countries covered by the survey -- Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands -- output growth slowed in all countries except France and Austria.
COST PRESSURES BUILDING
The headline indices from Germany and Italy both fell, while France's index held firm, supported by stronger domestic demand. The German index slipped to a six-month low of 54.1 from 55.1 in August. The French index was steady at 54.0 and the Italian index hit a seven-month low of 51.6 from 52.3 the previous month. The euro zone input prices index spiked higher in September mainly because of high oil prices, which in turn pushed up prices manufacturers paid for steel and other raw materials. The index jumped to 71.3 in September, from 66.6 in August and just below May's near four-year peak of 72.3. Margins may be squeezed further as oil prices spiralled to record highs of over $50 a barrel this week. "This signals demand-pull inflation. The key impact from this is pressure on profit margins," Williamson said. Inflationary pressures were also evident in the prices firms charged for their goods, which rose at their fastest pace since the index began in November 2002, as firms forced higher costs onto customers to rebuild profit margins. But although the PMI showed price pressures building, data released by Eurostat on Thursday showed inflation edged lower to 2.2 percent in September after rising at 2.3 percent in August.
This may deter the European Central Bank from raising rates too quickly, as inflation moves closer to its 2 percent target. Faced with higher input prices and softer order book growth, manufacturers in France and Italy continued to cut staff. Euro zone employment fell for the 40th straight month, although the rate of job losses eased, with the index edging up to 49.5 from 49.4 in August. On a brighter note, unemployment in Germany fell for the second month running after three years of job losses, helping to boost consumer confidence and domestic demand in the region, Willamson said. The PMI showed businesses were coping with current demand by boosting productivity rather than creating more jobs. The backlogs index slipped to 51.6 from 52.6 in August.///