Are Euro Zone Manufacturing Woes Signaling a Recession?

February marks the seventh straight month in which euro-zone manufacturing has shrunk. Factories in the region — including those in Germany, its strongest economy — are struggling with unprecedented challenges as new orders decline and backlogs of work evaporate, according to a business survey released Thursday.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index climbed to 49.0 in February from January’s 48.8, in line with a flash reading, but since July it has remained below the 50 mark that divides growth from contraction.

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“Whether the euro zone will sink back into recession in the first quarter remains highly uncertain,” said Chris Williamson, chief economist at data group Markit. ”The periphery remains the major concern.” The information was released a day after the European Central Bank pumped another half-trillion euros into the euro zone’s banks.

Manufacturing in Greece has seen its quickest decline in more than a decade as the country prepares itself for more cuts in exchange for desperately-needed cash to help rescue it from bankruptcy. In Spain, where more than one in five people is unemployed, factories have been slashing jobs at an alarming rate. Even in Germany, Europe’s largest economy, new orders in the manufacturing sector were down for the eighth month.

Sadly, although a recent Reuters poll shows that the euro zone may begin to emerge from the recession in the second half of 2012, it doesn’t look like manufacturing is going to have a role in the upswing. According to Williamson, the sustained decline of new orders means companies are generally unwilling to expand capacity and hire new workers, instead opting to cut costs in preparation for the hard times ahead. The European Commission predicts the euro zone’s economic output will fall 0.3 percent in 2012, the second recession in only three years for the common currency area.

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To contact the reporter on this story: Gina Smith at staff.writers@wallstcheatsheet.com

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