2012.05.02 11:45:03 Euro-Zone Manufacturing Slump Deepens

-- Euro-Zone Apr PMI slump led by Greece as austerity bites across the region -- Euro-Zone PMI fall confirms region is lagging US, Asian recoveries -- Manufacturing payrolls slashed at steepest pace in over two years -- Data suggest region will struggle to emerge from recession quickly LONDON -- The euro zone's manufacturing sector shrank at the sharpest pace in almost three years in April, indicating that the currency area's economy is likely to continue to contract. Manufacturing activity in the US and Asia expanded in April, confirming the euro zone as the weakest region in the global economy as the fiscal crisis and austerity programs take their toll. The manufacturing PMI for the euro zone slumped to 45.9 in April from March's 47.7. That was weaker than the preliminary reading and also the lowest index level since June 2009. Economists had forecast the index would be unchanged from the 46.0 preliminary reading. A level above 50 signals an expansion in activity, while a level below 50 signals a contraction. "Manufacturing in the euro zone took a further lurch deeper into a new recession in April, with the PMI suggesting that output fell at worryingly steep quarterly rate of over 2%," said Chris Williamson, chief economist at Markit. In contrast, the US ISM's manufacturing purchasing managers' index rose to 54.8 in April from 53.4 to reach its highest level since June last year. China's official PMI, meanwhile, came in at 53.3, up from March's reading of 53.1. The euro sank and the two-year German bond yield hit a record low after the PMIs were released, while Italian and Spanish 10-year government bond yields ticked up a touch. The decline in euro zone manufacturing activity has spread across the euro zone, but was steepest in Greece, Markit Economics' purchasing managers index for the sector showed Wednesday. Manufacturers across the single-currency region cut jobs for a third straight month in April and at the fastest pace in over two years as new orders--both domestically and from overseas--declined, highlighting firms' gloomy economic outlook. "It is evident that euro zone manufacturers are currently finding life very difficult amid challenging conditions," said Howard Archer, chief euro zone and U.K. economist for IHS Global Insight. "Domestic demand is being handicapped by tighter fiscal policy in many euro-zone countries, still squeezed consumer purchasing power, and rising unemployment." The euro-zone economy contracted by 0.3% in the fourth quarter of last year, and most recent data suggests it did so again in the first quarter of this year. Many economists regard two quarters of contraction as indicating an economy is in recession. According to the survey of purchasing managers, manufacturing activity declined in all three of the currency area's largest economies, with domestic orders falling. Germany's manufacturing PMI fell to 46.2 in April from 48.4 in March, while Italy's PMI slid to 43.8 from March's 47.9, while in France the PMI improved a little to 46.9 from 46.7, remaining firmly in contractionary territory. Economists had forecast the German PMI to fall to 46.3, and the French index to rise to 47.3, both forecast were unchanged from the preliminary readings. Meanwhile, the Italian manufacturing PMI was expected to drop to 46.7. Greece's PMI fell to 40.7 from 41.3 in March. "The issues facing manufacturers...remain deep rooted," said Paul Smith, a senior economist at Markit. "Panelists again noted problems in accessing working capital and a culture of cash payments. It remains hard to see how these issues can be solved, suggesting that the manufacturing sector is set for continued struggle in the months ahead." Spain's PMI showed conditions in the country's manufacturing sector deteriorated sharply again in April, with the third consecutive monthly decrease in the index. New orders fell at a substantial pace, amid a faster output contraction and a decrease in output prices, despite continued rises in production costs. The PMI stood at 43.5, down from 44.5 in March, the 12th consecutive month of a sub-50 reading and an indication that Spain's economy likely contracted in April, having shrunk in the fourth quarter of 2011 and the first quarter this year. Spain's IBEX 35 stock index fell hard, dropping 1.1% to 6928.70 following the release of the PMI. "The current level of the manufacturing PMI is consistent with further declines in activity going forward," said BNP Paribas's Ricardo Santos. He expects a 0.9% quarter-on-quarter decline in second-quarter gross domestic product. The euro-zone manufacturing PMI is based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands, which account for about 92% of the bloc's manufacturing activity. -By Ilona Billington, Dow Jones Newswires; +4420 7842 9452; ilona.billington@dowjones.com (Andrea Tryphonides in London and David Roman in Madrid contributed to this story.) (END) Dow Jones Newswires May 02, 2012 05:05 ET (09:05 GMT)