Brussels, Belgium —
Euro zone business activity fell for the first time in seven months in September, a major survey showed, as France lost steam after the Paris Olympics.
The S&P Global Purchasing Managers’ Index (PMI), a key gauge of the overall health of the economy, fell to 48.9 in September from 51 in August.
A reading below 50 indicates shrinkage.
“The euro zone is heading towards stagnation. After a temporary lift in France, the euro zone’s main economy, due to the Olympics effect, the composite PMI fell by its biggest in 15 months in September,” said Cyrus de la Rubia, chief economist at Hamburg Merkbank.
“Given the sharp declines in new orders and backlogs, it doesn’t take much imagination to predict a further weakening of the economy.”
The study showed that the euro zone’s two largest economies, Germany and France, were the main drivers of the recession in the 20-nation single currency bloc.
French private sector production began to shrink again after the Olympic boost, while German business activity fell the most since February.
Andrew Kenningham, chief European economist at London-based research firm Capital Economics, said the “sharp decline” in the euro zone PMI “suggests that the economy is slowing sharply, Germany is in recession and France’s Olympic stimulus measures are only temporary.”
“France’s growth prospects are looking worse with France’s new minority government planning to significantly tighten fiscal policy,” he said.
President Emmanuel Macron appointed a new government, led by Prime Minister Michel Barnier, on Saturday, 11 weeks after inconclusive parliamentary elections.
Eurozone PMI data showed manufacturing fell across the board, marking its 18th consecutive month of decline.
“Manufacturing is becoming more disrupted with each passing month,” de la Rubia said.
“Looking ahead, the sharp decline in new orders and bleak prospects for companies’ future production suggest that this downturn is not over yet.”
A decline in business activity could spur calls for the European Central Bank to cut its key interest rate again in October.
The central bank of the 20 euro zone countries this month cut its deposit rate by 25 basis points to 3.50%, the second cut since June.
The ECB has been raising interest rates at a record pace since mid-2022 to rein in soaring consumer prices, but is beginning to ease pressure as inflation falls again toward its 2% target.
