×

Euro Zone Factory Downturn Eases, Remains Widespread

163392348AH00045_New_Audi_A
Alexander Hassenstein | Getty Images

The downturn in euro zone manufacturing eased markedly last month but it remained widespread as falling prices for factories' goods failed to drum up new business, a business survey showed on Monday.

There was a marked improvement in the surveys for the 17-nation bloc's big four economies, echoing data last week that showed confidence in the euro zone improved more than anticipated in May.

Markit's Eurozone Manufacturing Purchasing Managers' Index rose to 48.3 from April's 46.7, coming in ahead of an earlier flash reading of 47.8 but spending its 22nd month below the watershed 50 level that divides growth from contraction.

Still, that reading is the highest since February 2012 and is the first time the downturn has eased in four months. An output gauge, which feeds into the wider composite PMI due on Wednesday, bounced to a 15-month high of 48.8 from 46.5.

The PMI for Germany, Europe's largest economy, remained sub-50 but it did improve and it was a similar story in neighboring France, the bloc's second biggest economy. Spanish and Italian PMIs also rose.

"Although the euro area manufacturing economy continued to contract in May, it is reassuring to see the rate of decline ease to such a marked extent," said Chris Williamson, chief economist at Markit.

"The surveys still suggest that GDP is likely to have fallen 0.2 percent in the second quarter, extending the region's recession into a seventh successive quarter."

With the bloc enduring its longest recession the European Central Bank has come under growing pressure to take more action to help bring a quicker end to the downturn.

The ECB cut its key interest rate last month to a new record low of 0.5 percent and said the euro zone was more stable than a year ago, but stressed challenging economic conditions remain.

ECB President Mario Draghi also said the central bank was ready to cut interest rates again if the bloc's economy deteriorates further but a Reuters poll taken last week did not forecast any more policy easing.

"Policymakers will nevertheless be pleased to see the downturn not getting any worse, suggesting the ECB will see no immediate need for further action at its June meeting," Williamson said.

The survey showed factory price pressures remained subdued, giving the ECB room for maneuver if it decides act.

Firms cut their prices again in May - the output price index fell to 47.6 from April's 47.9, its lowest since January 2010. However, this failed to push the new orders index above the break even mark, suggesting this month's PMI will see little improvement.

Inflation came in at 1.4 percent last month, well below the ECB's two percent target ceiling and unemployment reached a new high, official data released on Friday showed.