Eurozone manufacturing output contracts further in August

Eurozone manufacturing activity contracted further in August as inflation dented purchasing power, according to a survey released on Thursday.

The S&P Global manufacturing purchasing managers’ index for the bloc fell to a 26-month low of 49.6 from 49.8 in July, versus the initial estimate of 49.7. This was below the 50.0 mark that separates contraction from expansion for the third month in a row.

Both output and new orders declined in August. The survey found that weak demand was a major drag on goods producers, as high inflation dented purchasing power. Manufacturers subsequently cut their buying further "in response to the darkening economic outlook", although the reduced need for inputs helped lower the strain on suppliers, S&P Global said.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "Forward-looking indicators suggest that the downturn is likely to intensify - potentially markedly - in coming months, meaning recession risks have risen.

"Falling sales have not only led increasing numbers of factories to cut production, but have also meant warehouses are filling with unsold stock to a degree unprecedented in the survey’s 25-year history. Similarly, raw material inventories are accumulating due to the sudden and unexpected drop in production volumes.

"Weak demand and efforts to reduce high inventory levels are therefore combining to drive production lower in the months ahead. The orders-to-inventory ratio - an important indicator of future production - is in fact now signalling a downturn of an intensity not seen since 2009, barring the initial pandemic lockdown months."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "Overall, these data are in line with our forecast that EZ manufacturing output is now falling, and that it will contribute to the economy entering a technical recession."