July 1, 2019 / 8:11 AM / 21 days ago

Euro zone factory activity contracted for fifth month in June: PMI

LONDON (Reuters) - Factory activity in the euro zone shrank faster last month than previously thought in a broad-based downturn, according to a survey on Monday that suggested there would be no quick turnaround.

FILE PHOTO: Smoke is emitted from a paper mill in Durango February 19, 2014. REUTERS/Vincent West

The downbeat data will likely add to calls for the European Central Bank to ease monetary policy as it also highlighted weakening inflationary pressures.

IHS Markit’s June final manufacturing Purchasing Managers’ Index (PMI) was 47.6, below an earlier flash reading of 47.8 and May’s 47.7, marking its fifth month below the 50 level separating growth from contraction.

An index measuring output change, which feeds into a composite PMI due on Wednesday and is seen as a good gauge of economic health, spent its fifth month below the breakeven mark, registering 48.5. It was 48.9 in May.

“Euro zone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years,” said Chris Williamson, chief business economist at IHS Markit.

“The disappointing survey rounds off a second quarter in which the average PMI reading was the lowest since the opening months of 2013.”

Indicating there will be a slow start to the second half, new orders fell for a ninth month, stocks of new materials were depleted again, backlogs of work were run down and headcount was reduced for a second month.

To try to encourage demand, factories barely increased their prices in June. The output prices PMI fell to 50.6 from May’s 51.6, its lowest reading since September 2016.

Inflation in the euro zone was stable at 1.2% in June, a long way from the 2% the ECB would like it near, official data showed on Friday. [nL8N23Z29L]

“The downturn is also increasingly feeding through to lower inflationary pressures, as producers and their suppliers compete on price to retain customers and generate sales,” Williamson said.

ECB President Mario Draghi in a speech last month called for additional stimulus in the absence of any improvement in weak growth and tepid inflation. The central bank will by the end of September either cut its deposit rate or ease its forward guidance further, a recent Reuters poll found. [ECILT/EU]

- Detailed PMI data are only available under licence from IHS Markit and customers need to apply for a licence.

Reporting by Jonathan Cable; Editing by Hugh Lawson

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