European manufacturing continues to decline

on Friday, January 4, 2013

European manufacturing continues to decline The European manufacturing sector has experienced a decline in recent years, and data from December indicates the downward trend is continuing. Domestic manufacturing in the region contracted to 47.2 in December, according to the Markit Eurozone Purchasing Managers' Composite Output Index, and its average for the fourth quarter was only 46.5. Any number below 50 signifies negative growth.

Less decline than previously experienced
Despite its contraction, December's number was the highest seen in nine months, indicating the economic crisis on the continent may be easing slightly. Some countries are moving forward more quickly than others, with Ireland's all-sector output growth at 54.2 and Germany's at 50.3.

"The PMI surveys provide some hope that the Eurozone is showing signs of lifting out of its deep double-dip recession," said Chris Williamson, chief economist at Markit. "They surveys rose to multi-month highs in all four of the largest euro member countries, suggesting that rates of decline eased in France, Italy and Spain while the economic situation stabilized in Germany."

However, not all the news coming from Europe is positive. Williamson anticipated the higher overall numbers seen in December would do little to boost the Eurozone's overall growth rate for the end of 2012, and predicted final fourth quarter numbers are not likely to be strong.

Manufacturing costs high
Besides the recessions that have plagued Europe for years, the continent may also be losing ground in the sector due to the high costs of manufacturing. With cheaper labor prevalent in emerging markets in Asia and Africa, many companies are moving their operations to countries that have fewer workplace regulations and lower wage requirements. While such shifts in production may have an impact on the distribution supply chain, these additional shipping costs may be far less than the added expense of paying European workers.

Some operations may also find it difficult to operate in Europe due to the high energy costs seen in many countries across the continent. Many companies need natural gas or coal to operate, but due to the European focus on green energy like solar or wind power, carbon-emitting energy sources can be prohibitively expensive. According to The New York Times, many companies are closing their European plants and considering opening new facilities in countries that boast lower energy expenses, like the United States, in hopes of remaining profitable in a competitive market.


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