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Flash Eurozone PMI at 50.3 in November, indicative of 0.1% GDP
growth
Steep manufacturing downturn accompanied by further moderation
of services growth
Jobs growth lowest since January 2015, price pressure lowest
since 2016
The eurozone economy was becalmed for a third successive month
in November. At 50.3 in November, the 'flash' IHS Markit Eurozone
Composite PMI® fell from 50.6 in October to signal the
second-smallest expansion of output across manufacturing and
services since the current upturn began in July 2013. The past
three months have consequently seen a continual near-stagnation of
output, contrasting markedly with robust growth seen over the same
period one year ago.
The lacklustre PMI is indicative of GDP growing at a quarterly
rate of just 0.1%, down from 0.2% in the third quarter.
Manufacturing remained stuck in its deepest downturn for six
years amid ongoing trade woes, albeit with the rate of decline of
output easing modestly for a second month. November saw further
signs of the factory weakness spilling over to services, notably
via slower employment growth. Service sector growth waned to the
lowest since January as new business inflows into service providers
showed the third-smallest increase for almost five years.
Resilient jobs growth had provided a key support to the more
domestically-focused service sector earlier in the year, but with
the recent PMI surveys showing employment now rising at its slowest
pace since early-2015, it's not surprising to see the service
sector now also straining. However, the divergence between the
struggling manufacturing sector and the more resilient service
sector remains striking. The extent to which this can persist is
explored more fully in
our recent special report, which sees signs for cautious
optimism.
The weakening demand environment also fuelled more price
discounting as firms sought to boost sales. Average prices charged
for goods and services rose at the joint-weakest rate for three
years in November, while average input cost inflation slipped to
the lowest since August 2016. Such weak price pressures suggest
consumer price inflation will remain subdued in coming months.
Expectations about future output meanwhile remained well below
levels seen earlier in the year, reflecting heightened geopolitical
uncertainty, including Brexit, trade wars and auto tariffs, plus
general concerns about slowing demand. However, sentiment was
nevertheless the best for four months, albeit by a small
margin.
News by country was mixed. Tentative signs of life in the core
eurozone countries of France and Germany contrasted with a fresh
concern that the rest of the region has slipped into decline for
the first time since 2013.
Outlook
The PMI signalled a 0.2% rise in GDP in both the second and
third quarters of this year, in line with the official data, but
rounding to one decimal place masks a slowdown trend. In fact,
growth weakened from 0.24% in the second quarter to 0.17% in the
third quarter, according to a linear regression model. The further
deterioration so far in the fourth quarter, with 0.1% GDP growth
signalled by the PMI, therefore hints that the economy has
continued to lose momentum (alongside moderating price pressures)
despite recent stimulus from the European Central Bank.
We expect continued weak growth and underlying inflation rates
to prompt a further 10 basis points reduction in the ECB's deposit
facility rate (currently -0.50%) by March 2020 at the latest.
Our colleagues in the European economic forecasting team expect
eurozone GDP growth to have slowed from 1.9% in 2018 to 1.1% this
year, weakening further to 0.8% in 2020, when a bottom will
hopefully have been reached. Risks to the outlook remain skewed to
the downside. Concerns include larger spill-overs from
manufacturing to services and households, the imposition of US
tariffs on autos, uncertainty over Brexit and increased volatility
in global financial markets.
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.
