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Flash Eurozone PMI slides to 50.4 in September, lowest since
mid-2013
Manufacturing downturn intensifies to steepest since 2012,
while service sector growth weakens
New orders fall at fastest rate since 2013
Price pressures lowest since 2016
The eurozone economy is close to stalling as a deepening
manufacturing downturn shows further signs of spreading to the
service sector.
Economy close to stalling
The IHS Markit Eurozone Composite PMI® fell to 50.4 in September
according to the 'flash' estimate, down from 51.9 in August to
signal the weakest expansion of output across manufacturing and
services since June 2013. At these levels, the survey data indicate
that GDP looks set to rise by just 0.1% in the third quarter, with
momentum weakening as the quarter closed.
The weakest link remained the goods-producing sector, which is
going from bad to worse. September saw factories report the
steepest downturn since 2012, commensurate with the official
measure of manufacturing output falling at a quarterly rate in
excess of 1%.
However, a further worrying trend is the broadening-out of the
malaise to the service sector, where the rate of growth has now
slowed to one of the weakest since 2014. To put this in
perspective, the survey data indicate that quarterly output growth
in the service sector has slowed from 0.5% in the second quarter to
just 0.3% in September.
Our fears in prior commentary had been that we would see a
largely unprecedented gap between manufacturing and services start
to narrow, with services succumbing to the weakness spreading from
manufacturing, and this is indeed something which now appears to be
occurring.
Downside risks
The details of the survey suggest the risks are tilted towards
the economy contracting in coming months. Most vividly, new orders
for goods and services are already falling at the fastest rate
since mid-2013, suggesting firms will increasingly look to reduce
output unless demand revives.
Expectations for the year ahead meanwhile remained stuck at one
of the lowest levels since 2012, lifting only marginally higher
since August. The survey saw ongoing concerns about trade wars and
geopolitical stress, notably Brexit, exacerbating worries about
gloomier economic growth and demand prospects, both locally and
globally.
Furthermore, hiring is being scaled back due to the order book
slowdown, with jobs growth now down to the lowest since the start
of 2015. A worsening labour market adds to the risk that households
could trim their spending.
Weakened pricing power
The overall picture of an economy on the cusp of sliding into
decline was underscored by a further deterioration in firms'
pricing power. Average prices charged for goods and services barely
rose in September, registering the smallest increase since October
2016, while input cost inflation hit the lowest since August
2016.
The latest survey data come on the heels of the ECB having
announced a fresh stimulus package, including revived asset
purchases of €20bn per month (with no fixed end date) and a further
reduction of the deposit facility interest rate to -0.5% (this was
the fifth cut of 10 basis points since the DFR first went below
zero in 2014 but the first reduction since March 2016), as well as
a new series of quarterly targeted longer-term refinancing
operations (TLTRO III). However, with the PMI adding to risks of
increasingly sluggish growth and low inflation in coming months,
further monetary policy easing is
likely.
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.
