Eurozone manufacturing index drops to series-low 33.9

Final PMI data confirmed that the rate of decline of Eurozone manufacturing continued to gather momentum in December. At 33.9, compared to 35.6 in November, the Markit Eurozone Final Manufacturing Purchasing Managers’ Index reached a record low for the third successive month, with the rate of contraction steeper than that indicated by the flash estimate of 34.5 (published December 16).

The PMI has now registered contraction for seven consecutive months, with the rate of decline generally picking up throughout this period.

The PMI was dragged down by record rates of decline of output and new orders, both of which fell at faster rates than signaled by the earlier flash readings. Output fell for the seventh month, while orders have now fallen for nine months, with the rate of decline of new orders outstripping that of output to the greatest extent yet recorded by the survey.

Almost all countries covered by the PMIs reported series record declines in output, with Spain again recording by far the steepest contraction, followed by Germany. The Netherlands recorded the smallest drop in production though, even here, the rate of decline rose to a record pace. Only Italy and Ireland saw an easing in the rate of decline but, in both cases, this merely represented a moderation from record contractions in November.

Total new orders fell at a faster rate than new export orders, pointing to particularly weak domestic demand. However, the rate of decline of export orders also reached a new survey high, blamed largely on collapsing demand in key trading partner countries, especially the United States and Asian nations.

Germany reported by far the steepest drop in new exports orders of the main Eurozone countries. Record rates of output contraction were reported by Eurozone producers of consumer, investment and intermediate goods alike. Consumer goods producers reported the weakest contraction, while intermediate goods producers reported the largest fall, primarily reflecting weak demand and destocking of semi-manufactured inputs by other companies.

Increased use of discounts to stimulate sales caused average prices charged for goods to fall at the fastest rate ever recorded by the survey (and slightly faster than indicated by the flash) – a marked contrast to the near-record rate of increase seen in the summer. The steepest fall was seen for intermediate goods. The rates of decline hit survey highs in all countries except Germany and France.

Selling prices were also helped down by falling input costs, with average input prices dropping at the fastest rate yet recorded by the survey, linked largely to lower oil prices as well as the falling cost of many other commodities, notably metals.

Staffing levels declined at the sharpest rate in the survey history (and to a greater extent than signaled by the flash) as companies cut capacity in the face of falling demand. Employment has now fallen for seven successive months, with rates of job losses accelerating to record highs in all countries. Spain continued to see by far the fastest pace of decline.

Commenting on the PMI data, Markit chief economist Chris Williamson said: “The final PMI data indicates that industrial production fell by around 12 percent on a year ago in December, representing a doubling in the rate of decline from the latest published official rate of 5.6 percent seen in October. A further worsening in terms of production and jobs looks likely in coming months, as new orders are contracting at a far faster rate than companies are currently reducing both their output and employment. This is particularly evident in Germany.”