Germany PMI shrinks as Eurozone faces recession

Germany’s critical manufacturing sector saw a shock contraction in October for the first time in more than two years, as “grim” data from across the Eurozone showed how serious the region’s economic problems have become.

The final Markit Manufacturing Purchasing Managers Index (PMI) for the Eurozone in October showed how far the sovereign debt crisis is putting a chokehold on euro area business, as it was revised down to 47.1 from a preliminary reading of 47.3.

The survey, which gauges changes in activity levels across thousands of manufacturers, fell from 48.5 in September. A reading below 50 indicates contraction.

"It makes grim reading," said Alan Clarke, economist at Scotia Capital. "If there was any doubt that the Eurozone was headed for recession, these data should confirm it."

"Output, new orders and new export orders all suffered their fastest declines since mid-2009, against a backdrop of weak domestic market conditions, the ongoing debt crisis and a darkening outlook for the global economy," said Rob Dobson, senior economist at Markit.

Germany is in the spotlight as it looks increasingly as if Europe’s biggest economy, and its powerhouse so far, is faltering under the slowdown.

German unemployment unexpectedly rose for the first time in nearly two years to seven per cent, as manufacturers reported that new orders fell for a fourth month in a row.

Germany PMI fell for a sixth consecutive month in October to hit 49.1 – below the key 50 line that divides growth from contraction. The sub-index for new orders fell to 45.1, showing the outlook is darkening.

Spanish factory activity shrank for a sixth straight month, while conditions in Italy, increasingly the focal point of worry in the still-raging euro zone debt crisis, deteriorated much more sharply than expected to a 28-month low.

The Italy manufacturing PMI fell 5 points to 43.3, the biggest one-month fall since the survey began in 1997, suggesting an economy deep in recession.

French manufacturing was also on the back foot in October, with new orders drying up and a fall in output.

Ireland was the only Eurozone economy not to report a fall in factory activity.