European manufacturing shrank in April for the seventh time in eight months as production, orders and exports fell, suggesting the euro region's economy may struggle to avoid recession.
An index based on a survey of purchasing managers at about 2,500 euro region companies for Reuters Group Plc fell to 47.8 from 48.4 in March. Economists predicted an increase.
"Today's figures increase the chance of recession," said Joerg Kraemer, chief economist in Frankfurt at Invesco Asset Management, which oversees US$178 billion. "They are a bitter disappointment for those who at the beginning of the year predicted a recovery."
The US$7 trillion economy of the dozen nations sharing the euro probably contracted in the first quarter, the EU estimates. The currency's 6.5 percent gain against the dollar this year is eroding demand for exports at companies including Thomson SA. At the same time, rising unemployment is discouraging consumer spending. German retail sales fell in March.
Thomson, the world's fourth-largest consumer-electronics maker, attributed a 24 percent decline in first-quarter sales on lower demand in the US and the dollar's decline, the Paris-based company said on April 16.
"Exports struggle when the euro is this strong," said Lionel Oster, who helps manage the equivalent of US$56 billion at F&C Management Ltd in London.
Concerns are mounting about an economic rebound in the US, where factory output contracted in April for a second month, an industry report yesterday showed. Federal Reserve Chairman Alan Greenspan said this week he's confident the US economy will grow at a faster pace, "though the timing and the extent of the improvement remains to be seen."
Today's index for Germany dropped to 45.9 from 47.8 in March.
German factory output declined, a further sign of slowing growth in Europe's biggest economy. Chancellor Gerhard Schroeder cut his growth forecast to 0.75 percent this year.
Siemens AG, Germany's largest engineering company, said last week it may extend cost cuts as a slowing economy prompts customers to reduce spending. Fiscal second-quarter profit fell 56 percent, and the company is shedding more than 35,000 jobs.
French business confidence declined to a 15-month low in April as export orders fell. France's economy contracted 0.1 percent in the fourth-quarter, a separate report showed, revising down the 0.2 percent growth originally reported for Europe's third-largest economy.
"I feel much less confident about the general economic growth outlook," Jyrky Juusela, chief executive officer at Outokumpu Oyj, the fourth-biggest maker of stainless steel, said last week. "Nobody knows what will happen after the summer."
Stalling growth may push the European Central Bank to cut interest rates again, investors said. The bank in March reduced its benchmark lending rate a quarter point to 2.5 percent, the lowest in 3 and a half years.
"Europe is on a well-established downward trend," said Luigi Buttiglione, head of European economics at Barclays Capital Plc in London and a former economist at Italy's central bank.