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Eurozone Manufacturing Slightly Up But Wide Variations

Levels were below last year

Manufacturing activity in the 15-nation eurozone grew by slightly more than expected in January but with wide national variations suggesting "not all is well," a survey showed Feb. 1. The eurozone's seasonally adjusted purchasing managers' index (PMI), compiled by NTC Research, stood at a revised 52.8 in January, higher than the 52.6 forecast in an earlier estimate, and in December.In January 2007 the reading stood at 56.2.

A reading above 50 indicates expansion in the sector but the figures, including eurozone newcomers Cyprus and Malta for the first time, were markedly below the levels seen last year.

Although the euro's ascent has helped soften the blow of soaring, dollar-denominated oil prices, it is pinching European exporters by making their products less competitive on international markets.

Eurozone inflation of 3.2%, announced Jan. 31, was reflected in the input prices measure of the survey which was revised up to a six-month high of 64.8 from 61.5 in December.

Jacques Cailloux, chief eurozone economist for Royal Bank of Scotland, which commissioned the report, said the figures show that the manufacturing sector continued to expand "at a slow but reasonable pace. "However, the wide national variations suggest that not all is well," Cailloux said, with Spanish and Italian manufacturers clearly struggling because of weaker global growth, the strong euro, high oil prices and eroding demand in domestic markets. The report described the Spanish figures -- with the headline number standing at 49.8 signifying a contraction in manufacturing activity -- as "near stagflation."

French and German manufacturers continued to do well, "at least for the time being," Cailloux added.

Howard Archer of Global Insight said he expected the European Central Bank "to keep talking tough in the near term" and to emphasize that inflation remains its main focus. "Nevertheless, we suspect that slowing Eurozone growth, a deteriorating global economic environment, financial market turmoil and the strong euro will eventually compel the ECB to cut interest rates rather than raise them."

New orders growth was especially modest, standing unchanged from December at 51.7.

The export orders component was down slightly to 52.2 from December's 52.3.

Copyright Agence France-Presse, 2008

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