Friday 22 March 2019 10:28 am

Euro drops as Eurozone manufacturing activity hits six-year low

The Eurozone’s economy lost momentum again in March as Germany and France's manufacturing sectors struggled to overcome global headwinds, according to a closely-followed indicator.

Read more: Wages up across Europe despite gloomy economic climate

Manufacturers across the economic area suffered their steepest downturn in seven years this month, the IHS Markit Eurozone composite purchasing managers’ index (PMI) found today.

That meant the Eurozone’s PMI expanded only “modestly” to 51.3, the index warned, down from February’s 51.9, and the third lowest reading since November 2014.

Anything above a measure of 50 indicates growth.

Manufacturing fell to 47.7 from 49.4 in February, its worst drop since April 2013, as the data revealed that output is now shrinking.

Both Germany and France’s manufacturing sectors entered decline, sending the euro 0.5 per cent down to $1.132.

Phil Smith, principal economist at IHS Markit, warned Germany’s manufacturing downturn “has become more entrenched”, blaming Brexit uncertainty, the US-China trade war and a slowdown in car sales.

Overall, Germany skated close to hitting recession with a composite output reading of 51.5, while France began to contract, with a reading of 48.7.

IHS Markit economist Eliot Kerr added: “At the end of the first quarter, the French private sector was unable to continue the recovery seen in February, as both the manufacturing and service sectors registered contractions in business activity.”

The economic research firm warned that of all indicators, the biggest concern was the state of the Eurozone's manufacturing industry.

“Most worrying is the plight of the manufacturing sector, which is now in its deepest downturn since 2013 as trade flows contracted at the sharpest rate since the debt crisis-ridden days of 2012,” Chris Williamson, chief business economist at IHS Markit, said.

“The service sector is showing more resilience, notably in Germany, but remains in one of its worst growth patches since 2016.”

He warned any further loss of momentum in the second quarter would throw doubt on the economy’s chances of growing by more than one per cent this year.

Read more: Euro falls as Eurozone growth forecasts slashed

But the outlook does not look good, he said, adding: “Forward-looking indicators such as business optimism and backlogs of work suggest that growth could be even weaker in the second quarter.”