Euro zone August factory activity stuck in a rut, PMI shows By Reuters

LONDON (Reuters) – Euro zone manufacturing activity remained mired in contraction in August, a survey showed on Monday, with the data suggesting a recovery could be some way off as demand fell at its sharpest pace this year.

HCOB’s final euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, stood at 45.8 in August, just ahead of a 45.6 preliminary estimate but firmly below the 50 mark separating growth from contraction.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic health, nudged up to 45.8 from 45.6 in July, just ahead of the 45.7 flash estimate.

“Things are going downhill, and fast. The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting,” said Cyrus de la Rubia at Hamburg Commercial Bank.

“New orders, both domestic and international, are slowing down even more, dashing any short-term hopes for a rebound.”

The index covering new orders sank to 43.3 from 44.1, its lowest since December. Demand from abroad also fell at the fastest rate this year.

That decline came as manufacturers raised their prices for the first time in 16 months, driven by factories in France, the Netherlands, Greece and Italy.

“This could spell trouble for the ECB, which has been grappling with persistent inflation in services while relying on falling manufacturing prices to keep disinflation on track,” de la Rubia said.

However, overall inflation in the currency bloc fell to a three-year low of 2.2% in August, preliminary official data showed on Friday, strengthening the case for further policy easing from the European Central Bank.

It will cut its deposit rate twice more this year, in September and December, according to an over-80% majority of economists in an August Reuters poll, fewer reductions than markets currently expect.