Euro zone factories end 2013 on a high, but France a worry: PMIs

Reuters, Thursday 2 Jan 2014

France sees steepening downturn on the back of export losses as manufacturing output grows at fastest rate since mid-2011 in Eurozone peers

Euro zone manufacturing grew at the fastest rate since mid-2011 in December on brisk business in Germany and Italy, setting the stage for a solid start to the year after a tumultuous 2013, a survey showed on Thursday.

Markit's Eurozone Manufacturing Purchasing Managers Index (PMI) rose to 52.7 in December from November's 51.6, confirming an early estimate and marking its best reading in 31 months.

Readings above 50 indicate growth in activity.

New orders piled in at the fastest pace since April 2011, and a near two-year stretch of job cuts across euro zone factories almost came to an end last month.

Looking at individual countries in the region, the mood was largely positive, with the exception of France. Manufacturing activity in the euro zone's No.2 economy hit a six-month nadir last month.

"With producers reporting further growth of new orders, exports and backlogs of work, the stage is set for a good start to 2014," said Chris Williamson, chief economist at Markit, which compiles the PMIs.

"It seems likely that the manufacturing sector will help drive a meaningful, albeit still modest, recovery in the wider economy."

Williamson also noted that prices in manufacturing companies are starting to rise slightly, suggesting firms are seeing some improvement in pricing power.

The weakness of euro zone inflation, at just 0.9 percent in November, has caused concern among policymakers at the European Central Bank. The latest PMIs suggest that disinflationary forces from manufacturing, at least, may have peaked.

Markit said the December PMIs were consistent with production growing at a quarterly rate of 1 percent.

However, even with struggling Italy and Spain showing signs of a much brighter year ahead, the region's recovery may be hobbled by a sickly French manufacturing base.

"While Germany, Italy and Spain are seeing the strongest output growth since early 2011, buoyed to varying degrees by improved export sales, France is seeing a steepening downturn, in part the result of widening export losses," said Williamson.

"This suggests that competitiveness is a key issue which the French manufacturing sector needs to address to catch up with its peers."

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