Eurozone factory orders have recently slumped, according to official EU data released today. Yet some comfort can be found in the fact that unemployment continues to fall and that the euro-area economy should avoid a full-blown recession in 2008-2009.

Major global concerns continue to depress companies facing a combination of weak market conditions and rising inflationary pressures. Input cost inflation has soared to new highs, for instance, as rising oil, metals, energy and food product prices have been felt across the world’s manufacturing sectors.

“Nevertheless,” says Oxford Analytica at Forbes, “the stress on external factors such as energy and raw materials inflation and the continuing turbulence on international financial markets may be diverting attention away from the underperformance of the euro area, compared with other regions.”

The consulting firm cites the European Commission’s revised Spring Economic Forecast, published last month, which reports that economic growth is now set “to ease significantly over the forecast horizon” in the euro area. The commission now expects 1.7 percent real gross domestic product (GDP) growth in 2008 and 1.5 percent in 2009, or a half a percentage point lower than the commission’s earlier estimates.

“This slower growth should be seen in the context of the marked slowdown in global activity, with the U.S. on the brink of recession, continued turbulence in the financial markets and soaring commodity prices,” according to the European Commission last month. “But the EU economy should hold up relatively well in the face of these external shocks, due to sound fundamentals.”

Analysis of the recent data shows that by the fourth quarter of 2007, total European Union (EU) employment had increased by 3.3 million from a year earlier to reach 224.5 million, while unemployment had dropped to 16.1 million by the first quarter of 2008. However, quarterly employment growth halved in the Q4 2007 after the strong performance at the beginning of the year, and recent forecasts suggest that the unemployment rate may well bottom out in 2008.

The commission’s latest forecast expects falling unemployment this year and next, saying although the labor market is also “likely to feel the pinch,” 3 million new jobs are expected in 2008 and 2009 in addition to the 7.5 million already created in 2006 and 2007. “Unemployment should bottom out at 6.8 percent in the EU this year and 7.2 percent in the Eurozone.”

The commission is optimistic that the euro area should avoid a total recession in 2008 and 2009.

The first estimate for the euro area trade balance with the rest of the world in March 2008 gave a 2.3 billion euro (US$3.6 billion) deficit, compared with +7.5 billion in March 2007. The February 2008 balance was +0.8 billion, compared with -1.6 billion in February 2007. In March 2008 compared with February 2008, seasonally adjusted exports fell by 2.9 percent while imports remained stable.

In March, factories in the 15 nations sharing the euro saw demand fall more than expected, Eurostat data released today show. New industrial orders in the Eurozone fell by 1 percent in March from February and slumped 2.5 percent over the same month in 2007, the EU data agency reports.

The figures marked a sharp pull-back from February when new industrial orders had risen 0.2 percent over one month and 9.9 percent over one year, according to Eurostat’s data. The March weakness was driven by slumping orders for textiles, textile products, basic metals, fabricated metal products, machinery and other equipment. (Meanwhile, in the 27-nation EU, new industrial orders fell 0.7 percent over one month in March and 1.3 percent over one year.)

Since then, the manufacturing purchasing managers index data from JPMorgan’s Global All-Industry Output Index earlier this month indicates that growth in international trade volumes continued to slow in April. Whereas U.S. manufacturers reported “marked gains in export business on the back of the weaker U.S. dollar,” Eurozone exporters saw levels of new export orders decline due to a combination of slower global economic growth and a high euro exchange rate.

Resources

Slower Growth Seen In Euro-Area Economies
Oxford Analytica, May 21, 2008

Spring Economic Forecasts
European Commission, April 2008

Solid Employment Growth for The Second Year, But Early Signs Of A Cooling Off In Labour Markets
European Commission, May 19, 2008

Industrial New Orders Down by 1.0% in Euro Area – Down by 0.7% in EU27
Eurostat, May 22, 2008

Global All-Industry Output Index
JPMorgan and NTC Economics, May 6, 2008