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Germany leads upturn thanks to manufacturing surge, France and
periphery slip back into decline
Job losses ease but remain higher than at any time since
early-2013
Business activity stalled across the eurozone in September,
albeit with increasingly divergent trends by sector and country.
Faster growth of manufacturing, led by Germany, was offset by a
renewed downturn in the service sector, which was often linked to
resurgent coronavirus disease 2019 (COVID-19) infection rates.
A net loss of jobs continued to be reported, though the rate of
payroll reduction eased, notably in manufacturing, thanks in part
to improved future expectations. Price pressures meanwhile
moderated during the month.
Business stalls
The flash IHS Markit Eurozone Composite PMI® fell for a second
successive month in September, dropping from 51.9 in August to
50.1, indicating only a very marginal increase in business
activity. Having rebounded sharply in July and, to a lesser extent,
August from COVID-19 lockdowns during the second quarter, the PMI
has since indicated a near stalling of the economy at the end of
the third quarter as rising infection rates and ongoing social
distancing measures curbed demand, notably for consumer-facing
services.
Manufacturing output growth accelerated in September to the
fastest since February 2018, fueled by the largest rise in new
orders seen over this period. But the service sector, having
already almost stalled back in August, recorded the largest
contraction of output since May, albeit with the rate of decline
running far weaker than seen during the height of the pandemic.
Germany leads recovery
Germany continued to lead the recovery, though even here a
strong surge in manufacturing output, which grew at the fastest
rate since January 2018, was countered by a decline in services
activity for the first time since June to cause the rate of
expansion to slow for a second month running.
France meanwhile saw business activity deteriorate for the first
time in four months as falling service sector output more than
offset a modest rise in factory production.
Elsewhere, business activity fell for a second successive month
after July's brief return to growth, with the pace of decline
accelerating as an increased rate of contraction in services was
accompanied by slower manufacturing output growth.
Job losses remain higher than at any time since
2013
Employment was meanwhile cut for a seventh successive month.
Although the rate of job losses moderated further from April's
record peak, the pace remained higher than at any time since June
2013 prior to the pandemic. An easing in manufacturing job cutting
to the lowest since February contrasted with a slight increase in
the rate of job losses in services, reflecting the divergent
business activity trends between the two sectors. Reduced staff
cuts in Germany and France were partly countered by greater job
losses in the rest of the region.
Backlogs of work fell at a slightly reduced rate, showing
encouragingly robust growth in manufacturing but falling at an
increased rate in services due to the latter's drop in inflows of
new business. While the build-up of uncompleted work in
manufacturing hints at growing capacity pressures in the factory
sector, the service sector data point to the development of excess
capacity.
Prices fall but costs rise
Average prices charged for goods and services meanwhile fell at
the steepest rate since June, down on average for a seventh month
running as firms increasingly reported the need to offer discounts
to stimulate sales.
The drop in charges occurred despite costs rising again. Average
input prices increased for a fourth consecutive month in September,
albeit only modestly and at a slightly reduced rate compared to
August. Falling manufacturing input prices, often linked to the
appreciation of the euro, were offset by a further rise in services
costs, in turn often blamed on higher virus protection costs.
The combination of falling selling prices and rising costs
indicated the greatest squeeze on companies' margins since December
2018.
Covid-19 and the outlook
Looking ahead, business expectations about the coming 12 months
hit the highest since February, improving in both manufacturing and
services and across Germany, France and the rest of the euro area
as a whole. But this optimism often rests on infection rates
falling, which remains far from guaranteed for the coming
months.
The main concern at present is therefore whether the weakness of
the September data will intensify into the fourth quarter, and
result in a slide back into recession after a frustratingly brief
rebound in the third quarter.
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.
