Europe News

Euro zone manufacturing slows to 13-month low


Manufacturing output in the euro zone fell back in August, failing to meet market expectations, as economic and geopolitical uncertainties hit demand in the region.

Euro zone manufacturing purchasing managers' index (PMI) fell to 50.7 in August, down from 51.8 in July, according to data from analysis firm Markit. The 50-point mark separates expansion from contraction. Economists polled by Reuters had expected a figure of 50.8.

Read MoreEuro zone business activity slips, missing forecasts

Rob Dobson, Markit's senior economist, said recovery in manufacturing production had slowed for the fourth straight month and hit a 13-month low.

"Although some growth is better than no growth at all, the braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible. This is also the case on the demand front, with growth of new orders and new export business both slowing in August," he said in a statement.

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Markit noted that the figures signaled a broad easing in the manufacturing recoveries across much of the currency union, at a time when some economists expect the European Central Bank to announce additional stimulus measures to boost consumer demand. Ireland was a noticeable exception, Markit said in a press release, with its figure reaching its highest level since the end of 1999.

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Howard Archer, an economist at IHS Global Insight, said the only real positive from the gloomy data was that the sector still managed to post an expansion, despite France and Italy dragging the main index lower.

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"Euro zone manufacturers are clearly finding life very difficult at the moment as current heightened geopolitical tensions (particularly related to Russia/Ukraine) add uncertainty to still challenging conditions in many countries," he said in a research note shortly after the release.

"This heightened uncertainty has clearly hit business (especially) and consumer confidence and it is likely causing some orders to be delayed or even cancelled, particularly big-ticket orders."

BNP Paribas analyst Luigi Speranza said the decline in the periphery was a particular cause for concern. For Italy, he said there were increasing risks that the economy would stagnate in the second half of the year, and an expected recovery in 2015 would fail to meet market expectations.

Meanwhile in the U.K., manufacturing growth slowed further in August with the index posting a figure of 52.5, down from 54.8 in July. This was its lowest reading since June last year and was below a Reuters forecast of 55.1. Sterling fell against the dollar to $1.6622 after the news.