European September Manufacturing Contracts More Than Estimated

By Ben Sills

Oct. 1 (Bloomberg) -- European manufacturing contracted more than initially estimated in September as the deepening credit crisis slowed economic growth.

Royal Bank of Scotland Group Plc's manufacturing index dropped to 45 this month from 47.6 in August, Reuters reported. That is lower than the initial estimate of 45.3 published Sept. 23. The index is based on a survey of purchasing managers by Markit Economics in London and a reading below 50 indicates contraction.

The euro-region economy, which contracted for the first time since monetary union in the second quarter, saw confidence slide this month as the U.S. financial meltdown crossed the Atlantic. Akzo Nobel NV, the chemical company that paid $15.9 billion for Imperial Chemical Industries last year, said this week it will cut 3,500 jobs as the global housing slump damps demand for paints.

``Demand is already slowing and the general hit to confidence and the likely knock-on effect for the wider economy increases the likelihood it will slow even further,'' said Howard Archer, chief European economist at Global Insight in London. ``The euro-zone manufacturing sector has increasingly faltered in recent months.''

The financial crisis that forced Lehman Brothers Holdings Inc. to seek bankruptcy-court protection reached Europe this week with the Belgian government joining rescue plans for Fortis and Dexia SA. Stock markets in Europe and the U.S. slumped this week after the House of Representatives rejected a $700 billion plan to rescue the financial system.

Interest Rates

The European Central Bank has resisted calls to support economic growth by lowering interest rates, saying that it is more concerned about inflation. Consumer prices in the bloc rose 3.6 percent in September from the year earlier after 3.8 percent in August.

In Germany, Europe's biggest economy, the Munich-based Ifo institute's business climate index fell to a three-year low of 92.9 in September from 94.8 in August. Business confidence in France declined to the weakest in five years, while sentiment in Italy dropped to a seven-year low, separate reports showed.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net