Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Eurozone PMI at three-month low as rebound shows signs of
stalling
Stronger upturn in manufacturing offset by renewed fall in
service sector activity
Of the four largest euro members, only Germany saw sustained
recovery. Spain suffered largest hit amid fresh Covid-19
worries
Data add to risk of renewed eurozone GDP fall in fourth
quarter
The eurozone's economic recovery ground almost to a halt in
September, as a renewed fall in service sector activity countered
faster manufacturing growth.
The IHS Markit Composite PMI output index, a GDP-weighted
average of the manufacturing and service sector survey gauges, fell
from 51.9 in August to 50.4, signalling only a mild increase in
business activity.
While the survey continues to indicate that the economy
rebounded strongly over the third quarter as a whole, thanks to a
strong surge at the start of the quarter (after business activity
contracted sharply during the height of the Covid-19 pandemic in
the second quarter), the rebound lost almost all of its momentum as
the third quarter progressed. As such, the survey indicates an
increased risk of the economy sliding back into contraction in the
fourth quarter.
Spain suffers greatest hit, only Germany shows resilient
recovery
A downturn in service sector activity during September was
widely blamed on a second wave of virus infection rates in many
countries, with social distancing restrictions curbing recreation,
leisure, travel and tourism activities in particular.
Spain's service sector was especially hard-hit. With the
exception of the March-to-May period at the height of the first
wave of infections, Spain's service sector collapse in September
was the largest recorded since November 2012.
However, renewed service sector downturns were also recorded in
France, Italy and Ireland, while a near-stalling was recorded in
Germany, underscoring the broad-based geographical spread of the
worsening service sector picture.
Furthermore, due to the relatively large size of service sectors
compared to manufacturing, the weakening of the former exerted a
marked toll on overall business activity. Output in France, Spain
and Ireland consequently contracted in September, and remained
broadly stagnant in Italy. Of the four largest eurozone member
states, only Germany saw a robust overall expansion of activity,
with growth the second-quickest for two years, behind only that
seen in July, thanks to a strong surge in manufacturing
production.
Survey respondents commonly cited Covid-19 as a key cause of
worsening service sector growth. Virus containment measures
remained particularly strict in both Spain and Italy during
September, and were also tightened in France and Germany, according
to the IHS Markit Covid-19 Containment Indices. These gauges track
a basket of virus-related restrictions in each country to provide
an internationally comparable dataset to compare how economies are
likely to be affected by Covid-19. The gauges are also forecast to
the end of 2020 based on government disclosures on their planned
restriction in coming months.
According to current roadmaps for opening up economies, virus
related restrictions are set to remain at current levels on average
for the rest of the year, which will inevitably subdue business
activity at many consumer-facing service providers. Any further
escalation of virus infection numbers will of course likely also
result in tighter restrictions, curbing growth further.
Fourth quarter downturn risk
Our baseline forecast is for the eurozone economy to continue to
grow in the fourth quarter, but with the eurozone economy having
already almost stalled in September, the chances of a renewed
downturn in the fourth quarter have clearly risen.
Much will depend on whether second waves of virus infections can
be controlled, and whether social distancing restrictions can
therefore be loosened to allow service sector activity to pick up
again.
Governments will also need to be vigilant in providing timely
support to sustain recoveries, alongside increasingly accommodative
monetary policy. In terms of the latter, inflationary pressures
remained low in September, keeping the door open for loose policy.
Average prices charged for goods and services fell for a seventh
straight month in September, according to the PMI survey, with the
rate of deflation gathering pace again after easing in the prior
four months. Expectations have risen for more asset purchases to be
sanctioned by the ECB's governing council by the end of the year,
and any further deterioration of the PMI numbers as we head into
the fourth quarter will add further weight to calls for more
stimulus.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
