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.