Eurozone manufacturing recession looks endless after latest plunge in activity
The eurozone’s manufacturing recession has deepened, driven by a sharp slowdown in the region’s largest economies.
Data provider S&P Global has reported that the euro area’s manufacturing sector deteriorated at a faster pace during November.
This wasa driven by quicker declines in new factory orders, production, purchasing activity and inventories.
It pulled the HCOB eurozone manufacturing PMI down to a two-month low of 45.2, down from October’s 46.0. Any reading below 50 shows a contraction.
Among eurozone members, Germany recorded the fastest drop in output, Italy’s factory sector shrank at the fastest rate in a year, while France recorded the steepest contraction in 10 months.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:
“These numbers look terrible. It’s like the eurozone’s manufacturing recession is never going to end. As new orders fell fast and at an accelerated pace, there’s no sign of a recovery anytime soon. According to our nowcast, the manufacturing sector’s output is going to decrease by 0.7% in the fourth quarter compared to the previous quarter. This slump is likely going to drag into next year.
“The downturn is widespread, hitting all of the top three eurozone countries. Germany and France are faring the worst, and Italy is not doing much better. By main industrial grouping, it’s the capital goods sector which is taking the biggest hit. In an interesting development, Spain’s companies in the capital goods sector were able to show accelerated growth. This might be linked to the heavy floods in Spain, where an estimated 100,000 cars were destroyed and need to be replaced. But this boom most probably won’t last.
The report also found that companies continue to trim staffing levels, while firms continued to run down their inventories of materials and finished goods as they continued to destock.
Key events
British wealth manager St James’s Place is cut around 500 jobs in the coming months, Reuters reports.
The cutbacks come as the sector faces intensifying competitive pressures, even as SJP prepares for a possible elevation back to the FTSE 100.
Earlier this year, the company, which employs around 3,200 people, unveiled a cost-cutting plan to save £100m.
A spokesperson for St James’s Place says:
“Our cost reduction plans are focused on simplification and standardisation of processes within the business, but a programme of this size and scale will inevitably impact colleagues.
“We have now begun consulting with colleagues to share our proposal for how this might impact roles, the outcome of which will not be known until next year.”
Most eurozone bond yields (interest rates) have dropped today, on fears that the region’s economy is weakening.
The slump in manufacturing output last month could put more pressure on the European Central Bank to cut interest rates.
Thus, the yields on German, Spanish and Italian sovereign debt have all dropped, as their prices have risen.
French bonds, though, are flat – which means that the ‘risk-premium’ between Paris and Berlin has swelled.
Eurozone unemployment still low
Despite the troubles in the eurozone economy, unemployment in the bloc remains at a record low.
Data provider eurostat reported this morning that the eurozone unemployment rate was 6.3% in October, stable compared with September, and down from 6.6% in October 2023
Moody’s Analytics’ senior economist Kamil Kovar, says
“October was yet another month when euro zone unemployment defied the skeptics, this time by confirming that the previous decline to 6.3% was not a fluke that will be reversed.
Instead, the continued downward trend in the unemployment rate reflects structural declines in unemployment in Southern Europe that are dominating cyclical increases in Germany and elsewhere. We continue to believe that that the unemployment rate is more likely to tend lower, not higher, in coming quarters.”
There’s a small dip on the French stock market today, due to the shake-up at Stellantis and political upheaval in Paris.
The CAC 40 index has nudged down by 0.5% so far today, having dropped over 1% in early trading.
Stellantis are the top faller, now down 7.3%, with financial stocks, utilities and real estate the worst-performing sectors.
The ongoing row over the French budget is also worrying investors.
Prime minister Michel Barnier is at risk of a no-confidence vote that could bring down his administration, as he struggles to win parliamentary backing for his 2025 budget plan, which includesa social security financing project that will be debated in the lower-house national assembly this afternoon.
AFP newswire explain:
If Barnier fails to find a parliamentary majority backing the measures, he is expected to use executive powers to adopt them without a vote, a procedure called “49.3” after the constitutional article detailing the prerogative.
Such a move, however, would trigger a vote of no confidence that he could survive only if Le Pen’s party abstains, with Barnier having little hope of finding any support from the left of centre.
Kremlin says Trump threat to BRICS nations over US dollar will backfire
Over in Moscow, the Kremlin has suggested Donald Trump’s push to force Brics countries to keep using the US dollar would backfire.
Asked about Trump’s threat to impose 100% tariffs on Brics members if they challenged the dollar, Kremlin spokesman Dmitry Peskov said the dollar was beginning to lose its appeal as a reserve currency for many countries.
Peskov told reporters:
“More and more countries are switching to the use of national currencies in their trade and foreign economic activities.”
If Washington resorted to “economic force” to compel countries to use the dollar it would backfire, Peskov predicted, adding:
“If the U.S. uses force, as they say economic force, to compel countries to use the dollar it will further strengthen the trend of switching to national currencies (for international trade).”
Protest at DESNZ against Drax subsidies
Climate protesters gathered outside the Department of Energy Security and Net Zero in London this morning, to call for the end to government subsidies for the Drax Power Plant in North Yorkshire.
Protestors from Axe Drax, Biofuelwatch, Climate Resistance, Fossil Free London, Friends of the Earth, Greenpeace and other members of the Stop Burning Trees Coalition donned Christmas jumpers and brought four giant Ents and a Christmas choir to the department.
They presented the department with a Greenpeace petition calling for an end to the subsidies, signed by over 120,000 people.
Drax’s power station in North Yorkshire uses wood pellets to generate electricity; the protestors are unhappy that Drax is logging and sourcing wood from forests in British Columbia, and the Southern US, as well as burning waste wood.
Paul Morozzo, a climate campaigner for Greenpeace UK, says:
“Burning trees to stop climate change is just as ridiculous as it sounds, subsidising Drax is a joke that’s bad enough to go in a cracker, and all of the company’s accounting tricks aren’t making it any funnier.
If we’re going to hold back the climate disaster that’s starting to have impacts all around the world then the government needs to stop subsidising high-cost, high-carbon energy like Drax, and concentrate on cleaner, cheaper, genuinely renewable sources. And just as importantly, we need governments and companies to stop accepting IOUs in place of real carbon cuts, because the climate crisis is here now.”
The drop in British manufacturing output comes as the CBI warns that business activity in the UK is on course to shrink for the first time in more than two years.
The employers’ body has reported that growth expectations among UK companies have taken “a decisive turn for the worse”:
Thames Water appoints chief restructuring officer as it fights nationalisation
Jasper Jolly
Thames Water has appointed a restructuring expert to its board to advise it as the British water company tries to raise more than £6bn to avoid temporary nationalisation.
The company said that Julian Gething has been appointed as chief restructuring officer and will sit on the boards of several companies within its complex corporate structure.
Thames, which supplies water and sewage services to 16 million customers in London and the Thames Valley, said that Gething would not be involved in anything operational, and his appointment would not herald any job cuts within the company.
The British water industry has been under severe pressure for several years as many companies were caught out by rising interest rates, after years of underinvestment in crucial infrastructure. Thames has been the worst affected.
Thames has won approval from its creditors to borrow £3bn, before it tries to raise another £3bn in equity investment to try to turn it around. The talks over the debts are likely to wipe out existing shareholders’ stakes.
Gething has worked for 35 years in restructuring, specialising in situations in which debtors must negotiate over losses. He is a partner at AlixPartners, a consultancy. Thames said that the appointment was supported by its lenders.
UK manufacturing PMI hits nine-month low
Britain’s manufacturing downturn has also worsened!
The latest poll of purchasing managers at UK factories shows that output fell for the first time in seven months, driven by a fall in new orders.
S&P Global’s PMI report also shows that firms cut back their staffing levels, purchasing activity and inventory holdings last month.
Manufacturers found it harder to export; new orders from overseas contracted for the thirty-first month in a row, due to weaker demand from US, China, the EU and the Middle East.
Some firms specifically mentioned weak demad from Germany, especially from its auto industry.
Other companies suggested clients were rethinking their spending decisions following the UK budget at the end of October, which lifted taxes on businesses.
There are also signs that supply chain pressures have risen, due to the Red Sea crisis, border regulatory issues (including Brexit related constraints) and the recent strike at US ports.
This all pulled the UK manufacturing PMI down to 48.0 in November, from 49.9 in October, showing a contraction for the second month running.
Rob Dobson, director at S&P Global Market Intelligence says:
“Conditions in the UK manufacturing sector deteriorated again in November. The headline PMI fell to a nine-month low as concerns surrounding the economic outlook, high costs and weak demand led to lower output, falling orders and cutbacks to purchasing, jobs and inventory holdings.
The export climate also remained bleak, as weaker demand from the US, China and EU led to a further drop in new export business. While companies of all sizes are experiencing a downturn, small companies are the hardest hit, reporting especially marked drops in output, new orders and new export business.
Meanwhile, supply chain worries have intensified as the combination of the Red Sea crisis, port disruptions and border regulation issues led to longer supplier delivery times, input shortages and rising costs. Input price inflation accelerated as a result. With recent budget announcements on labour costs and employer national insurance likely to raise costs further in 2025, and geopolitical tensions heating up notably around the threat of increased global protectionism, manufacturers are left facing an environment of high costs, low demand and raised uncertainty for the foreseeable future.
Warning strikes begin at VW
News that the eurozone manufacturing recession has deepened came as Volkswagen workers across Germany began a walkout.
The “warning strikes”, which usually last a few hours, are a protest against VW’s plans to lay off thousands of people, cut pay and close plants for the first time in its home country.
Thorsten Gröger, the union IG Metall’s lead negotiator with VW, said:
“If need be, it will be the toughest collective bargaining battle Volkswagen has ever seen.”
The union leader accused VW managers of making the situation worse, adding:
“Volkswagen has set fire to our collective agreements.”
