Eurozone manufacturing sector remains in contraction

The eurozone manufacturing sector remained in contraction territory in July, according to a survey released on Thursday.

HCOB’s final manufacturing purchasing managers’ index for the sector was unchanged from June at 45.8, coming in a touch higher than the preliminary estimate of 45.6.

The manufacturing PMI output index, meanwhile, printed at 45.6 in July compared to 46.1 the month before, which was a seven-month low but just above the preliminary reading of 45.3.

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "The widely held belief that the eurozone's recovery would pick up speed in the second half of the year is taking a hit, thanks to the latest HCOB PMI index for the manufacturing sector. Earlier this year, it looked like the sector might gradually climb out of the production slump it had been in for months, but the doubts that surfaced in June have been intensified by an accelerated decline in production in July. Given this weak data, we'll probably need to lower our GDP growth forecast for the year from 0.8%.

"The weak demand situation has gotten even worse since June, meaning rising input prices can't be passed on to customers so easily. This means shrinking profit margins for businesses. If this trend keeps up, it spells trouble for investment and future growth, as companies will likely start cutting costs. On the flip side, the European Central Bank might have mixed feelings about this. Sure, rising input prices could push inflation up, but falling profit margins might help keep that inflationary pressure in check."