Euro zone manufacturing activity cooled further in May as factory output remained near a three-year low even while edging up slightly from the earlier flash estimate. There is also increasing evidence of a widening divergence between the big four economies in the 15-nation currency bloc with Germany and France continuing to prop-up a contracting Italy and a Spain which is in "free fall". This divergence is only going to add to the headaches over at the European Central Bank, which is already pretty worried about the continuing high inflation.
The RBS/NTC Eurozone Purchasing Managers Index for the manufacturing sector eased to 50.6 in May, down from April's 50.7 but above the flash estimate of 50.5, which was also the median number forecast by economists.
The index remained above the 50.0 dividing line between growth and contraction, but has now slipped for a fourth consecutive month and few expect a rebound soon. The survey showed factory output remained steady at April's 51.9, a low not previously seen since August 2005. New export orders slumped further into contraction to a low not seen for almost five years, at 48.6 from April's 49.7. A strong euro, which tipped above the $1.60 mark in April, and a slowdown in global growth hit factories while strong price pressures will support the case for the ECB leaving rates on hold at 4.0 percent when it meets later this week.
Input prices held at the flash estimate of 66.9 as oil tipped over $135 a barrel.
But companies were able to pass on some of the rises to consumers, with the output price index rising to 56.2 from the 55.4 flash estimate and only slightly below the 56.4 it registered in April, indicating price pressures remain.
Data on Friday showed euro zone inflation surged back to an historic peak of 3.6 percent in May, further dampening the case for any imminent interest rate cuts by the ECB.
German manufacturing held steady at 53.6 in May.
France showed something of a rebound, rising to 51.5 from April's 51.1, as output of consumer goods recovered and investment goods showed a robust increase.
Meanwhile conditions in Italy deteriorated further, dropping to a three-year low of 48.0 from 48.2 in April, as both domestic and international demand fell.
In Spain, the index fell to a six-and-a-half year low of 43.8 from 45.2 as output and new orders declined at record rates.