September 3, 2018 / 8:16 AM / 17 days ago

Euro zone manufacturing growth eases on trade war worries: PMI

LONDON (Reuters) - Euro zone manufacturing growth slowed to a near two-year low in August as optimism dwindled amid growing fears of an escalating global trade war, a survey showed on Monday.

FILE PHOTO: Smoke emerges from the chimneys of the chemical plant of Evonik Industries AG in Wesseling, Germany, February 3, 2016. REUTERS/Wolfgang Rattay/File Photo

However, this edition of the survey should be treated with some caution. It only represents about 70 percent of the usual sample size as swathes of European factories take a break over the summer months.

IHS Markit’s August final manufacturing Purchasing Managers’ Index dropped to a 21-month low of 54.6 from July’s 55.1, unchanged from an initial reading, yet still comfortably above the 50 level that separates growth from contraction.

An output index, which feeds into a composite PMI due on Wednesday and is regarded as a good gauge of economic health, nudged up to 54.7 from 54.4.

“Euro zone factories reported a further solid production gain in August, but prospects dimmed further as growth of new orders hit a two-year low and worries about the outlook deepened,” said Chris Williamson, chief business economist at IHS Markit.

Forward-looking indicators such as employment, optimism and new orders all fell, suggesting there would be little if any pick-up in activity this month.

The future output index, which measures optimism, fell from 62.4 to 61.0 - its second lowest reading since late 2015.

Manufacturers are increasingly concerned about a growing global trade dispute. U.S. President Donald Trump has told aides he is ready to impose tariffs on $200 billion more in Chinese imports.

So to try and drum up demand, factories increased prices at the weakest rate in a year. Official data on Friday showed inflation in the bloc eased to 2.0 percent last month, supporting the European Central Bank’s assessment that a recent spike may only be temporary.

Still, price pressures have built up enough for the ECB to curb some of its measures. The central bank plans to end its bond purchase program this year, although interest rates are expected remain unchanged for another year.

Editing by Toby Chopra

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