Euro zone factory activity at two and a half year high, but growth still weak

Monday 02 December 2013 10.40
Markit's euro zone Manufacturing PMI rose to 51.6 last month from October's 51.3
Markit's euro zone Manufacturing PMI rose to 51.6 last month from October's 51.3

Buoyant demand for manufactured goods drove euro zone factory activity to accelerate at its fastest pace in over two years last month and allowed firms to build up a small backlog of work, a new survey shows.

But that growth was still weak and Markit, compiler of the PMI Indexes, said evidence of a renewed downturn in France and Spain - as well as firms cutting staff - was disappointing.

"The November manufacturing PMI surveys bring good news on the whole, but suggest there's still a lot to worry about in terms of the health of the euro zone economy. The big concern is France," said Chris Williamson, chief economist at Markit.

Markit's euro zone Manufacturing PMI rose to 51.6 last month from October's 51.3, just beating an earlier flash reading of 51.5. 

An index measuring output nudged up to 53.1 from 52.9.

November was the fifth month the index was above the 50 level that denotes growth, and the reading was the highest since June 2011.

"More southerly countries continue to disappoint, though, especially France and Spain, where renewed downturns are evident," Williamson said.

France's PMI plummeted to a five-month low of 48.4 from 49.1, chalking up its 21st month below 50, while Spain's sank back below the break-even mark after spending the last three months in growth territory.

The euro zone escaped from its longest-ever recession earlier this year, supported by better than expected growth in Germany, but a Reuters poll last month suggested the bloc's economy will grow only moderately though next year. 

Data from Germany, Europe's biggest economy, showed factories there had their best month since mid-2011. Italian figures showed manufacturing there also picked up speed.

Demand from abroad for goods rose at the fastest pace since May 2011, with the export orders sub-index bouncing to 54 from October's 53.1. More total new orders also came in than last month.

But firms still reduced headcount for the 22nd month in a row.

"The other major concern is that employment continues to fall as companies seek to become leaner and more competitive. Any substantial improvement to the region's record unemployment situation still seems frustratingly far off," Williamson said.

However, factories did increase the price of their goods for the third month in a row. Flash inflation data on Friday showed prices across the euro zone rose 0.9% last month, slightly faster than expected but well below the European Central Bank's 2% target ceiling.