Euro-Area Factories Feel Gloom as Investment Demand Declines

(Bloomberg) -- Euro-area manufacturers saw activity slow further as concern over trade wars and political instability hit demand for machines and other investment goods.

IHS Markit's Purchasing Manager's Index for factories fell to 51.8 in November from 52 in October. While the reading exceeded a prior flash estimate of 51.5, it marked the weakest growth in more than two years.

“Production could act as a drag on the euro-zone economy in the fourth quarter,” said Chris Williamson, an economist at IHS Markit.

The views among companies about prospects for next year are “among the gloomiest seen since the sovereign-debt crisis in 2012” and suggest firms are “bracing themselves for further weak demand in the coming months,” he said.

Signs of dwindling investment may dash hopes for a rebound after the euro-area economy posted its slowest expansion since 2014 in the third quarter. Manufacturers reported falling demand in Germany, France and Italy and only a modest increase in orders in Spain, according to Markit.

So far, European Central Bank policy makers have argued that risks to growth are broadly balanced amid strong domestic momentum, reiterating their plan to cap bond buying this year. They will present new economic projections after their meeting on Dec. 13, which will include first forecasts for 2021.

IHS Markit cautioned that prospects for consumption shouldn't be overestimated.

“The survey also indicates that households could rein in spending if companies continue to pull back on their hiring,” said Williamson. This would add to “downside risks to the outlook.”

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

©2018 Bloomberg L.P.