Eurozone Factory Orders Slump More Than Expected

Weakness driven by drop in orders for transport equipment

New industrial orders in the eurozone slumped 3.5% in May from April and plunged 4.4% compared with the same month in 2007, the European Union's Eurostat data agency said. The result fell far short of economists' forecasts for orders to fall 2% over one month and increase 1.7% from May 2007.

"May's sharp decline adds to a recent stream of worrying news on the manufacturing sector and, indeed, the eurozone economy overall," said economist Howard Archer at consultants Global Insight.

The figures marked a sharp deterioration from April when new orders rose 2% over one month and surged 12.3% over one year, according to revised figures from Eurostat.

The weakness in May was driven by a sharp drop in orders for transport equipment, which often vary widely from month to month. However, orders for textiles and machinery were also soft.

Meanwhile, in the 27-nation EU new industrial orders fell 4.7% over one month in May and 2.8% over one year.

"After a remarkable upswing, new industrial orders stopped rising a year ago," said Bank of America economist Holger Schmieding. "Full order books have kept production humming so far," he said. "But as old orders are worked off and new orders are no longer increasing, industrial output looks set to stagnate soon as well."

Global Insight's Archer also predicted tough times for the industrial sector. "We believe that eurozone manufacturers will find life increasingly difficult over the coming months as they are buffeted by the very strong euro, muted consumer spending, softer growth in key export markets, elevated oil and commodity prices, and tight lending conditions," he said.

Copyright Agence France-Presse, 2008

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