Stronger euro hits manufacturing production

Stronger euro hits manufacturing production By Ralph Atkins and Mark Schieritz in Frankfurt Published: December 2 2004 02:00 | Last updated: December 2 2004 02:00

Eurozone manufacturing appeared close to contracting yesterday as the effects of the world economic slowdown and the stronger euro began to bite.

Manufacturing output has already fallen in Germany and Italy, according to the November purchasing managers survey, compiled by NTC Research for Reuters.

The eurozone output index fell by 3.6 points to 50.4 - the biggest drop since October 2001, the aftermath of the attacks on the US. The purchasing managers index, which acts as a forward indicator of production, fell from 52.4 in October to 50.4, the lowest since September 2003 and close to a point representing stagnation.

"We are on the brink of an industrial recession in the eurozone," said Julian Callow, economist at Barclays Capital. Particularly alarming was the drop in the new orders index, which acts as a guide to trends. It fell from 52.6 in October to 49.8 in November, pointing to an actual decline in orders.

The gloomy results highlighted how quickly the eurozone's export-led recovery has fizzled after a relatively strong first half of 2004. Economists blame slower growth in the eurozone's main export markets, with the full effect ofa stronger euro still to feed through.

The results came as the European Central Bank prepares today to downgrade its eurozone growth projection for 2005 to 1.9 per cent, from the previous 2.3 per cent.

The ECB is also expected to raise its 2005 inflation forecast from 1.8 to 2 per cent because of the recent rise in oil prices. The bank has been alarmed by recent inflation figures, but, with little sign of higher energy costs having had "second round" effects on wages or other prices, the central bank is expected to keep its main interest rate unchang-ed today at 2 per cent for the 18th month running.

The weak purchasing managers data fuelled speculation that the ECB might even be forced to cut rates in coming months. But Dirk Schumacher, economist at Goldman Sachs, said the ECB may view the figures as pointing to a temporary soft patch "and they will want to see more months of evidence before changing tack".

The eurozone purchasing managers data contrasted with similar figures for the UK, which showed manufacturing activity expanding at the fastest rate for four months. For the eurozone, a 14-month period of continuous manufacturing output growth ended in November in both Italy and Germany, and growth slowed in all other eurozone countries except Spain.

Ah, but all I have read lately is the trade deficit is causing the sky to fall. Lets see how fast our manufacturing exports rise. The socialist model doesn’t work regardless of how the MSM pumps it.

Oh, how sad! Excuse me, is my Schadenfreud showing?

The eurozone purchasing managers data contrasted with similar figures for the UK, which showed manufacturing activity expanding at the fastest rate for four months.

Maggie Thatcher's legacy is still working!

This is one area where I don't know what's going on: relative currency values.

What causes one currency to trade for more than another?

What are the underlying economic principles involved?

I remember as a kid, the Japanese Yen was over 200 and people got all uptight when it at one point the dollar fell to less than 100 Yen. The British Pound was cost more than two Dollars for decades, but no longer.

Short of the obvious, goods from depressed currencies are cheaper causing exports of that country would rise, what causes these moves? Is there a good primer to read on the subject?

5 posted on 12/02/2004 8:08:15 AM PST by Rate_Determining_Step (US Military - Draining the Swamp of Terrorism since 2001!)

They (Euroweinies) are screaming for China to raise the value of their underpriced yen. They can't compete.
Now, who's complaining about a lower US dollar? Once China raises their Yen, our low dollar will really give us a boost. Even the Canuck buck is going strong, which has their manufacturer's worried.

Back to Europe, just wait 'till they start cutting social prgrams to pieces, LoL! Their will be strikes all over the place, causing further economic woes. They will never learn...

I was wondering the same. I was also thinking, after Bush won the election, the Euro really took off. George Soros was not happy with a Bush win, and he has been known to cripple a country's economy before. Could he and his cronies have something to do with the dollars loss? Probably just a coincidence, but it never hurts to throw it out as A CONSPIRACY THEORY.

I remember the eurozone importing laborers to work in their factories. First it was within the eurozone then it was outside from the middle east.

The questions is whether the shrinking production will impact the devolvement into Eurabia...

So hard to say. I mean, Dollars are "cheaper", right? Why do things become cheaper? More of them will cause that, but we haven't really cranked up the printing presses. And there's no inflation that would accompany an oversupply.

The Euro is in short supply. I just can't picture that.

Ping! Can somebody ping an economist who knows the answer?

Always wanted to know the why of this.

9 posted on 12/02/2004 2:16:56 PM PST by Rate_Determining_Step (US Military - Draining the Swamp of Terrorism since 2001!)

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