Eurozone PMI Numbers Underscore Manufacturing and Services Slump

Highlights

• Eurozone Manufacturing PMI remains at 43.4; contraction evident.
• Services PMI shows slight recovery at 48.4, still below threshold.
• Inflationary pressures contrast in manufacturing and services.

Eurozone Confronts Economic Contractions Amid Fading Demand

The Eurozone has encountered a notable decline in the private sector, marked by the most significant dip in new orders in almost three years. As companies grapple with diminishing demand, key metrics from the HCOB Flash Eurozone PMI reveal the depth of this economic slump.

Divergent Sectoral Trends

Manufacturing continues to be the leading contributor to the decline in the Eurozone’s output. The HCOB Flash Eurozone Manufacturing PMI Output Index remained unchanged at 43.4. The service sector, however, marked a slight improvement, with its PMI Business Activity Index rising to 48.4 from 47.9 in August. Notably, both sectors are still below the 50-mark threshold, indicating contraction.

Inflationary Pressures and Pricing

The Eurozone’s inflation story in September revealed contrasting trends. Input costs surged at their most rapid pace in four months, with services bearing the brunt due to increased wages and fuel expenses. In stark contrast, manufacturing registered a seventh continuous monthly decline in input costs. Despite rising input costs, the softer demand meant companies raised their selling prices to a lesser degree than the preceding month.

National Disparities and Impacts

Germany and France, the two major economies of the Eurozone, have been at the forefront of the downturn. Germany’s output reduced for a third straight month, whereas the contraction in France was even more pronounced, marking its steepest drop in over a decade. Meanwhile, the rest of the Eurozone observed a comparatively stable business environment in September, with a mild upturn in services.

Short-Term Forecast: Bearish Outlook

Given the contraction in both manufacturing and services sectors, the outlook for the Eurozone remains bearish. Manufacturing, especially, is in a precarious state, and while services are showing some resilience, they’re not enough to offset the decline. With companies cautious in hiring, the forecast suggests that the Eurozone is poised to enter a contraction in the third quarter. Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, further emphasized the risk of a wage-price spiral, underscoring the challenges that lie ahead for the Eurozone economy.