Euro zone factories hit hard in June, job cuts rise

Mon Jul 2, 2012 4:14am EDT
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By Yati Himatsingka

LONDON (Reuters) - Euro zone manufacturing took another hefty blow in June and factories are preparing for worse to come, according to business surveys on Monday that showed jobs were cut at the fastest rate in two-and-a-half years.

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) was unchanged at 45.1 in June, above the preliminary reading of 44.8 and holding at its lowest reading since June 2009.

Anchored below 50 mark that divides growth and contraction for almost a year now, the survey again showed factories in the region's two biggest economies, Germany and France, are succumbing to a downturn that started in southern Europe.

Companies are clearly preparing for worse to come, cutting back on both staff numbers and stocks of raw materials at the fastest rates for two-and-a-half years," said Chris William son, chief economist at data provider Markit.

The PMI suggests that the goods-producing sector contracted by around 1 percent in the second quarter, with this steep rate of decline looking set to accelerate further as we move into the second half of the year."

Released on the heels of a summit of European Union leaders in which they agreed to help Spain and Italy borrow more affordably, the survey only highlighted the huge challenge policymakers face in restoring the currency union's economic fortunes.

Alarmingly, the survey's employment index fell to 46.7 in June, its lowest since January 2010, from 47.1 in the previous month, signaling accelerating job cuts.

With companies like French carmaker Renault (RENA.PA: Quote) last month announcing plans to cut jobs, the factory payrolls look unlikely to recover soon.   Continued...

View of the Renault headquarters in Boulogne-Billancourt, near Paris January 11, 2011. REUTERS/Jacky Naegelen