Global| Dec 01 2004European Manufacturing Slows; Oil Price & Strong Euro Blamed
Summary
The PMI Index for Euro-Zone manufacturing edged down almost 2 points in November and at 50.42, is barely above the 50% expansion threshold. Output and new orders both weakened. The PMI surveys in Europe and a number of other countries [...]
The PMI Index for Euro-Zone manufacturing edged down almost 2 points in November and at 50.42, is barely above the 50% expansion threshold. Output and new orders both weakened. The PMI surveys in Europe and a number of other countries are published by NTC Research, a London firm, in conjunction with Reuters.
Among countries, the index in Germany actually fell below 50, to 49.85, indicating outright contraction, albeit not widely spread. Besides output and new orders, employment also decreased, with the weakest reading since November last year. Results for Italy were also in the contractionary zone. France's index decreased but remained above 50%, while that for Spain edged upward, with a level just above 51%.
The general slowing is attributed by analysts to the recent strengthening of the euro. In the two years ended last February, the euro gained 45% against the dollar. It then lost some ground during the spring before flattening and then heading higher again in mid-October to a record $1.3288 on November 26, up another 5% over February's already high average.
The strong euro tends, of course, to make European products less competitive in world markets. But it also has a benefit: it takes some of the sting away from surging energy costs, which are priced mostly in dollars. In the second graph alongside, we illustrate the price of Brent crude, which hit a near-term bottom in May 2003 at $22.94 and €20.62 per barrel. Since then, it has risen 92% in dollar terms, but "only" 59% in euro prices. This is obviously still a significant input price burden for European manufacturers, but far less harsh than what US producers face.
Carol Stone, CBE
AuthorMore in Author Profile »Carol Stone, CBE came to Haver Analytics in 2003 following more than 35 years as a financial market economist at major Wall Street financial institutions, most especially Merrill Lynch and Nomura Securities. She has broad experience in analysis and forecasting of flow-of-funds accounts, the federal budget and Federal Reserve operations. At Nomura Securites, among other duties, she developed various indicator forecasting tools and edited a daily global publication produced in London and New York for readers in Tokyo. At Haver Analytics, Carol is a member of the Research Department, aiding database managers with research and documentation efforts, as well as posting commentary on select economic reports. In addition, she conducts Ways-of-the-World, a blog on economic issues for an Episcopal-Church-affiliated website, The Geranium Farm. During her career, Carol served as an officer of the Money Marketeers and the Downtown Economists Club. She has a PhD from NYU's Stern School of Business. She lives in Brooklyn, New York, and has a weekend home on Long Island.
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