Dec. 1 (Bloomberg) -- The manufacturing industry in the 12 nations sharing the euro expanded at the slowest pace in 14 months in November as higher oil prices and the euro's increase to a record against the dollar crimped exports.

An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc dropped to 50.4 from 52.4 in October. Economists expected a decline to 52, the median of 39 forecasts in a Bloomberg survey showed. A reading above 50 shows expansion.

The euro region's economic recovery is faltering as the currency's 10 percent rally against the dollar in the past three months makes exports more expensive and higher oil prices boost companies' costs. DaimlerChrysler AG, the world's fifth-largest carmaker, said last week the euro will hurt profit.

``The weakening of growth that we're seeing is very disappointing,'' said Ulrich Scheinost, chief economist at the Frankfurt-based ZVEI electrical and electronics industry association, whose 1,400 members include Siemens AG. ``It doesn't seem like the dynamism we've seen from exporters is helping domestic growth yet, and the euro and the oil price are endangering this process even more.''

The euro rose to $1.3336 today, the highest since its introduction in 1999. The euro rose 0.2 percent to $1.3307 at 12:18 p.m. in Frankfurt.

An index measuring new orders registered a contraction for the first time since July 2003, the purchasing managers survey showed. A gauge of employment in the manufacturing industry declined to the lowest since October 2003.

German Collapse

In Germany, Europe's biggest economy, manufacturing contracted for the first time in 15 months, with the purchasing managers index dropping to 49.9. In France, the index declined to 52.2 from 53.5 and in Italy, the third-largest economy in the euro region, manufacturing also contracted.

``It's worrying that manufacturing in Germany has collapsed,'' said Julien Seetharamdoo, an economist at Capital Economics Ltd. in London. ``The report is extremely disappointing and suggests the euro-zone recovery is now very feeble.''

The euro's appreciation comes at the same time global growth is slowing. The Organization for Economic Cooperation and Development cut its 2005 global growth forecast to 2.9 percent from 3.3 percent as a 62 percent increase in oil prices in the past year hurt trade and left consumers with less money to spend.

TUI AG, Europe's largest travel company, is levying a fuel surcharge on package vacations from today and Henkel KGaA, the German maker of Persil detergent, said Nov. 25 that the oil price may erode profit next year if it stays at the current level.

ECB Forecasts

The pace of growth in the euro region slowed to 0.3 percent in the third quarter, the weakest in more than a year, Eurostat, the European Union's statistics agency, said today. A 0.8 percent increase in government spending and a buildup in inventories kept the economy growing as export growth slowed and the rate of increase in consumer spending stayed at just 0.2 percent.

The European Central Bank lowered its forecast for growth next year to 1.9 percent from 2.3 percent, according to a person familiar with the matter. ECB President Jean-Claude Trichet yesterday signaled the bank would cut the estimate, saying the economy will expand ``at a somewhat slower pace than previously anticipated.''

In the U.S., the world's largest economy, growth accelerated in the third quarter. Manufacturing growth in the U.S. probably quickened in November for the first time in four months, economists said before the Institute for Supply Management's report at 10 a.m. Washington time today.

Rate Expectations

With the oil price threatening to keep inflation above the ECB's 2 percent ceiling, Trichet has limited scope to shore up the euro region's economy by cutting interest rates. The ECB will keep its main rate at a six-decade low of 2 percent tomorrow, according to all 33 economists surveyed by Bloomberg.

``The outlook for economic activity, both globally and domestically, continues to be surrounded by uncertainties,'' Trichet said yesterday. The outlook for growth and inflation hasn't ``led us to think that it is right to change our monetary policy.''

The outlook for slowing growth has prompted investors to scale back speculation about an interest-rate increase next year, futures trading shows. The rate on the three-month Euribor futures contract for June settlement fell to a contract low of 2.26 percent today from 2.54 percent on Oct. 1.

The contracts settle to the three-month euro area inter-bank lending rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the currency's start in 1999. That rate was 2.17 percent.

To contact the reporter of this story: John Fraher in Frankfurt at jfraher@Bloomberg.net

Last Updated: December 1, 2004 07:19 EST