Eurozone manufacturing hits two-year low as confidence plummets on trade war

01 October 2018 10:50 Source:ICIS News

LONDON (ICIS)--Manufacturing sector growth in the eurozone was at its slowest rate in two years in September as global trade concerns push confidence down to a near three-year low, according to IHS Markit on Monday.

The purchasing managers’ index (PMI) rate for the eurozone dipped to 53.2 points during the month, the weakest since September 2016 and below August’s 54.6 points.

A PMI score above 50.0 indicates growth, while a reading below that level indicates a contraction.

Business sentiment, meanwhile, weakened to a 35-month low in September as geopolitical worries and concerns over trade protectionism measures continued.

The Netherlands and Ireland were the main drivers of growth for the second month running, with PMI scores of 59.8 and 56.3 respectively, while Austria’s PMI was 55.0.

Germany (53.7) and Spain (51.4) posted growth, however, their PMI scores were the lowest in 25 months.

France posted a three-month low of 52.5, while Italy stagnated at 50.0.

The reasons behind the slowdown in growth was a little-changed new export orders, which in turn led to a weak gain in overall order books.

“Eurozone manufacturing shifted down yet another gear at the end of the third quarter,” said Chris Williamson, chief business economist at IHS Markit.

“The sector has seen booming growth at the start of the year rapidly fade to the worst performance for two years in September as production and jobs growth have slowed in response to a stalling of export trade."

Williamson went on to say September's survey would paint the "worst trade picture" for over five years, with export growth having slumped sharply from a series of record highs in late 2017 to "near-stagnation" in September.

He also warned that the near three-year low in manufacturers’ optimism means the worst is yet to come for the industrial sectors in Europe.

Analysts at London-based Oxford Economics also attributed the weak manufacturing sentiment to a slowdown in world trade and continuing concerns about the escalation of trade tensions between the US and China.

They noted how manufacturing sentiment has now fallen by 7.6 points since its peak at the end of 2017.

"With little immediate prospect of change in the external environment, any acceleration in European growth will have to come from stronger domestic demand," concluded Oxford Economics.

Pictured: Hamburg's Harbour. A slowdown in world trade has added woes to the European manufacturing sectors
Source: Rasmus/imageBROKER/REX/Shutterstock

By Niall Swan