Eurozone recession fears mount on manufacturing drop

Worries are growing that the 19-country eurozone economy is heading towards a recession that could start undoing hard-earned improvements in the labour market.

In a survey of manufacturers that is closely monitored by the European Central Bank in its interest-rate deliberations, financial information company IHS Markit found that the sector is contracting for the first time since June 2013.

Its so-called purchasing managers’ index – a broad gauge of activity in manufacturing released Friday – fell to 49.3 points in February from 50.5 the previous month. Anything below 50 indicates a contraction in activity.

That’s a weak reading at a time of growing uncertainty about the progress of United States-China trade talks, volatility in financial markets, and Britain’s impending exit from the European Union. Growth has faded recently in the eurozone – in the final quarter of 2018, the bloc grew only 0.2 per cent from the previous three-month period.

The slowdown in manufacturing is a sign that global trade is on the wane amid a tariff war between the US and China. Export-reliant Germany was at the forefront of the survey’s decline, with Italy disappointing as well.

“Euro-area manufacturing is in its deepest downturn for almost six years, with forward-looking indicators suggesting risks are tilted further to the downside as we move into spring,” said Chris Williamson, chief business economist at IHS Markit.

“In addition to widespread trade war worries, often linked to US tariffs, and concerns regarding the outlook for the global economy, companies report that heightened political uncertainty, including Brexit, is hitting demand.”

Analysts warned that the hit to manufacturing could soon end a long-running drop in unemployment. Official figures released Friday show that unemployment across the single-currency bloc is at its lowest rate since the global financial crisis.

Eurostat said the jobless rate fell to 7.8 per cent in January, unchanged from the December rate, which was downwardly revised from the previous 7.9 per cent. The rate is the lowest since October 2008.

The agency said 23,000 people left the ranks of the unemployed during the month, taking the total down to 12.85 million.

AP