Euro zone private sector activity contracted for the first time in seven months in September, with signs of weakening also in the services sector, according to provisional PMI data from CdM | Hamburg Commercial Bank and S&P Global.
In particular, the flash euro area composite PMI fell to 48.9 from 51 the previous month, the lowest level in eight months. In the services sector, the index fell to 50.5 in September from 52.9 in August, the lowest level in seven months. Meanwhile, manufacturing activity worsened one percentage point to 44.8, the lowest level in nine months. September therefore saw a “new decline” in private activity, with the first decline in seven months amid a “sustained decline” in new orders.
Indeed, new orders fell at the sharpest pace since January last year. Companies cut jobs for a second straight month as new orders and backlogs fell “sharply” and business confidence slumped to a 10-month low.
At the same time, weak demand led to a slowdown in both cost and price inflation.The decline in aggregate activity was driven by a widening slowdown in European industry, whose output fell for the 18th consecutive month and at its fastest pace so far this year.Services sector activity continued to increase, but the latest expansion was “minimal” and the weakest since February last year.
After the Olympics boosted the services sector in August, France’s total activity fell back into negative territory in September, following Germany, which saw its biggest drop in activity since February. Other euro area countries are now expecting a further rise in total activity at the end of the third quarter, but any such expansion will be “moderate” and the weakest since January.
“The euro zone is heading for stagnation. After a temporary boost in the euro zone’s main economy, France, due to the Olympics, the composite PMI index fell at its fastest pace in 15 months in September,” summarized Cyrus de la Rubia, chief economist at Hamburg Merchants Bank. “Manufacturing is becoming more complicated by the month.”
The economic slowdown is now in its 27th month and worsened in September. Looking ahead, the sharp fall in new orders and increasingly gloomy outlook for future business activity for companies suggest that this downturn is not over yet,” he added. De la Rubia suggested that easing in services inflation might be “welcome” for the European Central Bank (ECB), but a “quasi-parallelisation” of the overall services sector could lead to an interest rate cut in October.
