Manufacturing in the dozen euro nations may have contracted for a second month in May, adding to evidence oil prices around US$50 a barrel and unemployment near a five-year high are holding back growth, a survey of economists showed.

An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd for Reuters Group Plc probably fell to 49 from 49.2 in April, according to the median of 30 estimates in a Bloomberg survey.

Before that, the index last was below 50, which indicates a contraction, in August 2003.

Growth prospects for the euro region are deteriorating as higher energy prices drive up costs and companies including Electrolux AB, the world's largest maker of household appliances, cut jobs. French voters' rejection of the European Union constitution may add to the pessimism.

European consumer and business confidence declined in May, reports showed on Tuesday.

"Companies are suffering and urgently need to restructure," said Dario Perkins, an economist at ABN Amro Holding NV in London.

"This will undoubtedly lead to more pain for consumers who are already very worried about their jobs."

The European Central Bank will probably cut its 2005 growth forecast to about 1.4 per cent from 1.6 per cent when policy-makers meet on June 2 in Frankfurt, according to the median forecast of 21 economists surveyed by Bloomberg.

The ECB will also keep its benchmark interest rate at 2 per cent, a six-decade low, said all 40 economists who replied to a separate survey.

"The ECB can effectively argue that with these historically low levels there is not much more they can do," said Steve Major, head of government bond strategy at HSBC Holdings Plc in London.

Increasing uncertainty

ECB President Jean-Claude Trichet said on May 30 oil prices have led to "increasing uncertainty over economic prospects." Bank of Italy Governor Antonio Fazio, who also sits on the ECB's 18-member governing council, said on Tuesday Europe's fourth-biggest economy is in an "acute phase of difficulty" after it slipped into recession for the second time in as many years.

The price of crude has climbed 38 per cent in the past year, touching a record of US$57.65 a barrel in London on April 4.

Germany's VCI chemical industry group, which includes companies such as Leverkusen, Germany-based Bayer AG, said on May 24 oil prices may limit sales growth.

Cologne-based Deutsche Lufthansa AG last month announced plans to raise fuel surcharges to cope with higher energy costs.

Faced with shrinking profit margins, more companies are resorting to job cuts. Electrolux plans to eliminate about 1,100 jobs in Europe, transferring production to countries with lower wages.

International Business Machines Corp, the world's biggest computer services company, said on May 4 it will eliminate as many as 13,000 jobs, mainly in Europe.

(China Daily 06/02/2005 page12)