PMI data signals negative outlook for eurozone manufacturers

By Gokhan Ergocun

ISTANBUL (AA) - The euro area’s producers suffered yet another setback at the start of the third quarter as a steeper reduction in new orders led contractions in output and employment to accelerate, data provider S&P Global revealed on Thursday.

"There were further declines in purchasing activity and inventories, while business confidence weakened to a four-month low," it noted.

Factories in the euro area refrained from passing on greater cost burdens to clients, however, as their own charges were broadly unchanged, it said.

The purchasing managers index (PMI) data showed no change in July from June, staying at 45.8 once again.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said in the release: “The widely held belief that the eurozone's recovery would pick up speed in the second half of the year is taking a hit, thanks to the latest HCOB PMI index for the manufacturing sector.

"Earlier this year, it looked like the sector might gradually climb out of the production slump it had been in for months, but the doubts that surfaced in June have been intensified by an accelerated decline in production in July."

Given this weak data, GDP growth forecast should be lowered for the year from 0.8%.

He added: “The weak demand situation has gotten even worse since June, meaning rising input prices can't be passed on to customers so easily.

"This means shrinking profit margins for businesses. If this trend keeps up, it spells trouble for investment and future growth, as companies will likely start cutting costs." ​​​​​​​