Euro-Area Manufacturing Contracted for 11th Month in June

Euro-area manufacturing output contracted for an 11th straight month in June as Europe’s debt crisis sapped demand across the continent.

A gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8 on June 21. A reading below 50 indicates contraction.

Europe’s economy is showing increasing signs of weakness after stalling in the first quarter as the worsening fiscal crisis erodes the confidence of executives and consumers. While European leaders sought at a Brussels summit last week to address some of the flaws in regional bailout programs sparked gains for the single currency last week, economists say the European Central Bank needs to buttress those gains by cutting interest rates on July 5.

“It is difficult not to see the summit in a positive light,” RBS economists Jan Dubsky and Richard Barwell said in a note to clients from London. Yet “there is enough of a conventional monetary policy problem -- weak demand -- to warrant conventional monetary policy response.”

The European currency rose for the first time in eight days on June 29 as euro-area leaders agreed to relax conditions on emergency loans for Spanish banks and possible help for Italy.

Euro Summit

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels that day, chiefs of the 17 euro countries dropped the requirement that taxpayers get preferred creditor status on aid to Spain’s blighted banks. They also opened the way to re- capitalizing lenders directly with bailout funds once Europe sets up a single banking supervisor.

The European Central Bank’s governing council gathers in Frankfurt on July 5 amid speculation officials will lower their benchmark interest rate by at least 25 points to a record low of 0.75 percent as the economy hovers near recession.

“Producers’ input costs are now falling at the fastest rate for nearly three years, which should help boost profitability and feed through to lower inflation,” Markit’s chief economist, Chris Williamson, said in today’ report. “However, their biggest fear at the moment is slumping demand rather than rising prices, with demand in home markets and further afield being hit by heightened uncertainty regarding the economic outlook as the region’s economic crisis rolls on.”

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.