Composite PMI falls short of expectations
The flash euro zone composite PMI compiled by S&P Global HCOB fell to 48.9 in September from 51.0 in August. It was the first contraction since February, dropping the index below the 50-point mark that separates growth from contraction. Economists polled by Reuters had expected the index to fall only to 50.5.
The unexpected contraction signals a weakening of demand across the euro zone, with new orders falling at the fastest pace in eight months. The new business index fell to 47.2 from 49.1, further highlighting the severity of the economic slowdown. Cyrus de la Rubia, chief economist at Hamburg Merkbank, said that given the declines in backlogs and new business figures, “it does not take much imagination to expect a further weakening of the economy.”
Weakened service sector
The services sector, which has held up better than manufacturing, also showed signs of strain. The Services PMI fell sharply to 50.5 from 52.9, below the forecast of 52.1, suggesting the EU’s largest sector is approaching stagnation. Inflationary pressures in the services sector eased, with the Producer Price Index falling to 52.0 from 53.7, but this did little to offset the general economic slowdown.
“The ECB is closely monitoring persistently elevated inflation in the services sector, so the news that both input and output price inflation have slowed is certainly welcome,” de la Rubia added. But the slowdown in inflation has not been enough to revive business activity.
Manufacturing continues to struggle
Eurozone manufacturing remains in significant contraction, with the sector’s PMI falling further to 44.8 from 45.8. The output index also fell to 44.5, highlighting continuing challenges for factories. Manufacturing sentiment fell to its lowest level in 11 months, and the index of future factory output fell sharply to 52.0 from 57.5, reflecting weak expectations for a near-term recovery.
Germany, the euro zone’s largest economy, continues to be hit by a slump in manufacturing, while France is back in recession after a brief economic recovery following the Olympics in August.
