Business activity in the euro zone slumped again this month, with domestic and international demand falling even as companies hardly raised prices, and the economy remains in contractionary territory, a survey showed this week.
The HCOB Eurozone Composite Purchasing Managers' Economic Index (provisional value) compiled by S&P Global was 49.7 in October, slightly up from 49.6 in September, but still below 50, which is the dividing line between growth and contraction. It has fallen for two consecutive months.
A Reuters poll predicts a significant rise to 49.8.
“This survey is consistent with a weak economic environment with slower inflation due to weaker demand,” ING's Bart Koline said.
“The PMI rose slightly as the contraction in manufacturing eased, but that's not very encouraging since manufacturing has been contracting since the second half of 2022.”
He noted that even the more resilient services sector is facing a decline in new orders.
The Composite New Business Index barely rose from September's eight-month low of 47.7 to 47.8. A new export index, which includes trade between eurozone member countries, also fell below 50.
Business activity in Germany, Europe's largest economy, contracted in October, according to PMI, but the decline was not as steep as in September.
France, the second-largest economy in the monetary union, saw its dominant services sector contract for the first time in seven months, dragged down by a slump in new orders.
Outside the European Union, the UK's PMI showed employment fell for the first time this year, while businesses reported their weakest growth in 11 months as uncertainty ahead of the Labor government's first budget dampened confidence. I showed that I did it.
ECB interest rate cut attracts attention
Thursday's PMI survey recorded the first major update on economic activity since the European Central Bank cut interest rates for the third time this year last week.
The central bank recognizes the economic outlook is deteriorating, with some policymakers speaking of the risk of falling below the 2% inflation target, a notable shift in tone after two years of campaigning to contain prices. be.
“We believe today's print will strengthen the ECB's case for continuing rate cuts at its December meeting,” said Paolo Grignani of Oxford Economics. “At this point, the size of the reduction remains uncertain as it is still early in the quarter and a large amount of data is expected to be released.”
In line with a Reuters poll of economists, the market has fully priced in another rate cut in December.
Eurozone government bond yields fell slightly ahead of the figures, subdued as investors saw slower growth in the region.
Growth in the region's key services industries slowed again, with the PMI falling to 51.2 from 51.4, disrupting a Reuters poll's forecast for a rise to 51.5.
This is despite the fact that companies have only increased their prices slightly. The service output price index was slightly above September's 41-month low of 52.6.
Although not as severe as in September, the decline in manufacturing activity in the region continued for more than two years. Factory PMI rose to 45.9 from 45.0 to 45.3, beating poll expectations for a smaller increase.
The index measured output bounced from 44.9 to 45.5.
But optimism about the year ahead has faded. The future production index fell from 53.6 to 52.3, the lowest level in 12 months.
