April 1, 2019 / 7:07 AM / 19 days ago

Euro zone factory activity contracts faster in March: PMI

LONDON, (Reuters) - Factories in the euro zone had their worst month for almost six years in March and forward looking indicators pointed to gloomy times ahead, a survey found, grim reading for European Central Bank policymakers.

IHS Markit’s March final manufacturing Purchasing Managers’ Index declined for an eighth month, coming in at 47.5 from February’s 49.3, just below a flash estimate and its lowest reading since April 2013.

An index measuring output change, which feeds into a composite PMI due on Wednesday - seen as a good gauge of economic health - sank to 47.2 from 49.4, its lowest since April 2013 and the second straight month it has come in below the 50 level dividing growth from contraction.

The disappointing results come after the ECB changed its outlook last month. It pushed back the timing of an interest rate rise until 2020 at the earliest and said it would offer banks a new round of cheap loans to help revive the economy.

A Reuters poll last month found the ECB may have missed its opportunity to raise interest rates before the next downturn.

Friday’s PMI suggested that downturn was already underway - new orders fell at their fastest rate in over six years, backlogs of work were run down at their fastest pace since late 2012 and factories curtailed purchases of raw materials as they stockpiled unsold products.

“Looking at the forward-looking indicators, downside risks have intensified, and the trend could clearly deteriorate further in the second quarter,” said Chris Williamson, chief business economist at IHS Markit.

Optimism about the coming year deteriorated sharply. The future output index dropped to 55.5 from February’s 56.7, its lowest since December 2012, and so factories barely increased headcount last month.

Editing by Toby Chopra

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