September 1, 2015 / 10:53 AM / 2 years ago

European manufacturing momentum fades, but jobless rate falls

LONDON, Sept 1 (Reuters) - Europe's economies are generating little inflation and manufacturing growth is slowing across much of the continent, a series of surveys showed on Tuesday.

Taken together with a slowdown in Asian manufacturing, led by China, the latest European purchasing managers' indexes suggest only some economies, among them Germany and Spain, are expanding steadily.

But the PMI surveys for both Italy and France, where many of Western Europe's best-known manufacturers reside, came in below even the lowest forecasts in Reuters polls. That suggests a pace being built up since last year is fading.

The loss of momentum is worrying, particularly since the European Central Bank is holding both its key interest rates at below zero or just above and is buying 60 billion euros worth of bonds a month - quantitative easing - to stimulate the region's economies.

"We now see a much bigger risk that the ECB will step up QE as soon as this week's meeting," wrote Nick Kounis, head of macro and markets research at ABN Amro. "We see this probability at around 40 percent, so it is an increasingly close call."

There was some good news on Tuesday: official data showed the euro zone jobless rate unexpectedly fell to 10.9 percent in July from 11.1 percent, a sign past economic strength has started to erode high unemployment. But that momentum may already be waning.

The final Markit factory PMI for the euro zone edged down slightly to 52.3 in August, where 50 marks the line between expansion and contraction. The PMI for Germany, Europe's biggest economy and exporter, was mostly steady at 53.3.

The Italy PMI, which was showing signs of improvement for an economy that has made little progress since the financial crisis, fell to 53.8 in August from 55.3.

And France, the euro zone's second-biggest economy, appears to be stuck in a slump again with a final August PMI of 48.3.

Even in Britain, which has been outperforming the euro zone since the financial crisis seven years ago, there was disappointing news on manufacturing.

The Markit/CIPS UK manufacturing PMI fell to 51.5 from 51.9, confounding expectations for a slight improvement in what Markit described as figures consistent with stagnation.

One standout was the PMI for Denmark, which surged to 61.7 in August from 54.5. The Czech Republic also reported robust factory activity.

Other Scandinavian and Eastern European economies were caught in the manufacturing slowdown. Swedish, Norwegian and Polish PMIs all declined, with Norway's dropping to a six-year low.

"It's all consistent with a global economy which clearly is struggling to make any significant headway," said Peter Dixon, economist at Commerzbank.

Editing by Larry King

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