MANUFACTURING in Germany and the UK declined in May, choked by record commodity prices and slowing economic growth across Europe.
German production, adjusted for seasonal swings and inflation, dropped 2.4 percent from April, the biggest decline since February 1999, the Economy Ministry in Berlin said yesterday. The index of UK manufacturing production fell to its lowest since September, slipping 0.5 percent on the month.
The global slowdown is rippling through Europe's economy as inflation accelerates and higher credit costs drag down house prices in parts of the region, Bloomberg News said. The UK, Spain and Ireland are close to recession and evidence is mounting that Germany, an engine of European growth since financial markets seized up last year, is also starting to slow.
The pound dropped yesterday, falling 0.6 percent to 79.61 pence per euro. It declined 0.8 percent against the dollar to US$1.9687. The euro slipped 0.3 percent to US$1.5659.
Germany's economy has helped the euro region cope with the global slowdown, sparked by the United States subprime mortgage crisis last year. Now exporters are struggling to cope with a stronger euro that's making their goods more expensive abroad.
Europe's single currency has surged 15 percent against the dollar and 18 percent against the pound in the past year.
German manufacturing orders unexpectedly declined for a sixth straight month in May, a report showed last Friday. The last time orders fell for five consecutive months or more was in 1992 and Europe's largest economy shrank the following year.
Yesterday's drop in manufacturing production may have been exacerbated by the fact that many Germans took two days off in May to bridge the gap between a public holiday and a weekend, the government said.
The German slowdown comes as much of Europe buckles under the weight of higher credit costs. In Spain, industrial production fell the most in six years in May.
Irish unemployment rose in June to the highest in almost a decade. Falling house prices are also dragging down growth in Britain after a decade-long boom.
Property values dropped 6.3 percent in June, the worst annual decline since 1992.