German manufacturing slumps, drags euro area down

01 December 2014

German manufacturing last month slumped unexpectedly dragging factories in the euro area to the brink of stagnation, Bloomberg reported.

A Purchasing Managers Index for Germany was down to 49.5 from 51.4, London-based Markit Economics said today, which was below a 20 November estimate of 50, the dividing point between expansion and contraction. France and Italy too experienced decline in manufacturing  with a euro-area gauge revision to 50.1 from 50.4.

The weakness in the region, coupled with the lowest inflation in five years, was pushing the European Central Bank closer to increasing unconventional stimulus to revive price growth and the economy.

President Mario Draghi is due to lead a meeting of policy makers on 4 December after signalling that they were working to get new tools, including full-scale quantitative easing, ready at the earliest.

According to Chris Williamson, chief economist at Markit, the situation in euro-area  manufacturing was worse than earlier thought. He added not only was the performance of the sector the worst seen since mid-2013, there was a risk that renewed rot was spreading across the region from the core.

The manufacturing gauge for Italy continued to stand at 49 in November, falling short of the reading of 49.4 projected by economists, Reuters reported.

The decline comes even with factories cutting their prices for a third month, at the steepest rate since mid-2013.

Annual inflation was down to 0.3 per cent in November, firmly in the ECB's deflation "danger zone", even as unemployment stood at 11.5 per cent for the third month in October.

The ECB, however was not expected to modify its already very loose policy during a meeting scheduled for the 4 December and there was only an even chance it would buy government bonds, a Reuters poll revealed last week.

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