1st LD Writethru: Euro zone manufacturing expands despite Greek slump in July

The eurozone manufacturing sector continued to expand at a solid, steady pace at the start of the third quarter, even as Greek manufacturing activity plunged in July to an all-time low, a survey showed Monday.

The manufacturing purchasing managers' index (PMI), a key measure of manufacturing activity in euro zone countries, was 52.4 in July, above the earlier flash estimate of 52.2 and close to June's 14-month peak, according to Markit, a global provider of financial information services.

A reading above 50 indicates expansion, while a reading below 50 represents contraction.

The euro zone manufacturing PMI has remained in expansion territory since July 2013.

The survey showed, growth of output, new orders and employment was registered across the consumer, intermediate and investment goods sectors in the euro zone countries in July.

Rates of improvement were comparatively strong at consumer and investment goods producers, whereas only modest rises were seen in the intermediate goods sector.

Among the 19-member states of the euro zone, the deepest contraction of manufacturing sector registered in Greece due to a three-week bank shutdown.

The Greek PMI reading of 30.2 was substantially worse than its previous record low (37.7 in February 2012). Production, new orders, new export orders, employment and purchasing activity all suffered sharp slumps, dropping at the fastest rates on records since Markit began compiling the data 16 years ago.

"Manufacturing output collapsed in July as the debt crisis came to a head," Phil Smith, economist at Markit which compiles the Greece manufacturing PMI survey said.

"Although manufacturing represents only a small proportion of Greece's total productive output, the sheer magnitude of the downturn sends a worrying signal for the health of the economy as a whole," he added.

However, there was no conclusive evidence from survey respondents of events in Greece directly impacting operating performance elsewhere in the currency union's manufacturing sector.

July data signalled a further modest improvement in manufacturers' operating conditions in Germany. The German PMI ticked lower to 51.8, from 51.9 in June, as rates of increase in new orders and output slowed slightly. This partly reflected the first drop in new export business at German manufacturers since January. In contrast, job creation accelerated to a three-month peak.

"The German manufacturing sector remained stuck in a low gear at the start of the third quarter, with the PMI signalling further, albeit only modest, growth," Oliver Kolodseike, economist at Markit and author of the report said.

"Meanwhile, input and output prices both continued to rise during July, suggesting that Germany's trip into deflationary territory at the start of the year was only temporary, " he added. However, French manufacturers reported a slight deterioration in business conditions during July. According to Markit, French manufacturing PMI was 49.6 in July, down from 50.7 in June.

The French PMI slipped back below the 50.0 mark separating expansion from contraction in July, seeing output, new business and employment all decline during the latest survey month.

Although France was the only nation apart from Greece to report a decline in any of these variables, rates of contraction were only mild and substantially less marked in comparison, Markit said in the report.

The most impressive growth rates are being seen in the Netherlands, Spain and Italy, and the latter being notable in enjoying its strongest growth for over four years in July, according to Markit.

"The eurozone manufacturing economy showed encouraging resilience in the face of the Greek debt crisis in July," Chris Williamson, chief economist at Markit, said.

"Policymakers will be reassured by the robust growth rates seen in these countries and the resilience of the manufacturing sector as a whole, especially as growth is likely to pick up again now that Greece has jumped its latest hurdle in the ongoing debt crisis," Williamson said. Endit