BARCELONA (ICIS) – Initial euro area Purchasing Managers’ Index (PMI) figures reveal that the region’s economy is shrinking, with a previously strong services sector weakening and a deepening slump in manufacturing.
S&P Global’s HCOB flash euro zone composite PMI for September fell to 48.9, signalling the first contraction in private sector business activity across the region in seven months. A reading below 50 indicates a decline.
New orders continued to decline and new business fell at the sharpest pace since January. New orders and backlogged business fell even sharper, and business confidence fell to its lowest level in 10 months.
Companies cut staff numbers for the second consecutive month, and weak demand led to slowing inflation in both input costs and output prices.
The overall decline in business activity was driven by a deep slump in euro area manufacturing, whose output fell for the 18th consecutive month and at its fastest pace so far this year. Services business activity continued to grow, but the latest expansion was modest and the weakest since February.
French production contracted again in September after an Olympics-related stimulus in August, following Germany’s steepest decline since February. Elsewhere in the euro zone, production grew again but at a smaller rate and the slowest pace since January.
The manufacturing slump worsens
The decline in euro zone manufacturing production has continued for 18 consecutive months and showed signs of worsening in September, with production falling by the sharpest amount so far in 2024.
The decline in manufacturing was particularly noticeable in Germany and France, but declines were also seen in other eurozone countries.
The services sector grew slightly, but at the slowest pace since February, and there was another contraction in France, while the services sector continued to grow in Germany and other euro area countries.
New orders in the service sector fell for the first time in seven months, while new orders in manufacturing also contracted further after four consecutive months of increases.
The outlook is depressing
Business confidence continued to decline, falling for the fourth consecutive month to its lowest level since November, and sentiment was weaker than average, especially in manufacturing. Eurozone confidence was dragged down by a gloomy outlook in Germany, where businesses predicted a decline in production for the first time in a year. Confidence rose slightly in France and other eurozone countries.
Eurozone manufacturers not only cut jobs, but also reduced purchasing activity and inventories of raw materials and finished goods in September.
Price growth weakens
A weakening demand environment helped ease inflationary pressures in September. Input cost inflation slowed sharply, falling to its lowest level since November 2020. Input prices for manufacturing fell for the first time in four months, while cost increases for service providers were the slowest in three and a half years.
Output prices rose only slightly, the slowest rate of increase since the current inflationary period began in February 2021. Manufacturing sales prices fell again as the rise in services inflation slowed.
Output price growth slowed in Germany and other euro zone countries, while rates fell in France for the first time since February 2021.
“The euro zone is heading towards stagnation,” said Cyrus de la Rubia, chief economist at Hamburg Merkbank. “After a temporary recovery in France thanks to the Olympics, the euro zone economy suffered its biggest contraction in 15 months in September. Given the sharp decline in new orders and backlogs, it is easy to see the economy weakening further.”
He added: “Manufacturing is becoming more disrupted by the month. The recession has now lasted 27 months and worsened in September. Looking ahead, the sharp decline in new orders and the increasingly gloomy production outlook for companies suggest this downturn is far from over.”
UK PMI shows economy still expanding
The S&P Global Flash UK PMI for September, also released today, showed the private sector economy is still expanding, albeit at a slower pace than in August.
The UK PMI rose to 52.9 from 53.8 the previous month. Business activity picked up sustainedly in September, expanding for the 11th consecutive month, but output growth in both manufacturing and services slowed, slowing the pace of the overall recovery for the first time since June.
Inflation fell to a 42-month low in September as slowing increases in prices charged by service providers more than offset a faster increase in ex-factory prices.
Thumbnail photo: Photovoltaic panel installation in Germany (Credit: Jochen Tack/imageBROKER/Shutterstock)
