Eurozone: Manufacturing activity shrank in July

Manufacturing activity in the euro zone shrank in July, with factories forced to stockpile unsold goods due to weak demand, fueling concerns that the euro zone could slip into recession.

S&P’s manufacturing PMI fell to 49.8 in July from 52.1 in June, marginally higher than initial estimates of 49.6, but for the first time below the 50-point mark that separates growth from the contraction, from June 2020.

The manufacturing index, considered a good indicator of economic health, fell to a more than two-year low of 46.3, down from 49.3 in June.

“Eurozone manufacturing is sinking into an ever sharper slowdown, raising the region’s recession risks.

New orders are already falling at a rate that – excluding the pandemic months – is the highest since the 2012 debt crisis, and the worst is yet to come,” said Chris Williamson, chief economist at S&P Global.

The weaker-than-expected sales, reflected in accelerated rates of decline in new orders and exports, led to the biggest rise in finished goods inventories the survey has ever recorded.

The new orders index fell to 42.6 from 45.2, the lowest level since May 2020, when the pandemic began to spread around the world, indicating little chance of a recovery anytime soon.

S&P Global said output was falling in all countries surveyed except the Netherlands, and that the rate of decline was particularly worrying in Germany, France and Italy, the EU’s three largest economies.