Eurozone PMIs have been trending downward since June, raising questions about the already fragile economic recovery from the energy crisis. As a result, the European Central Bank has decided to increase the pace of interest rate cuts. Listening to ECB President Christine Lagarde speak at a recent press conference, she seemed to place great importance on the worsening survey data when explaining her decision to cut interest rates in October.
This makes today's announcement even more meaningful for the market as more and more markets are pricing in a 50bp rate cut in December. At the IMF meeting in Washington, hawks are against cutting interest rates by 50 basis points unless economic conditions deteriorate further. This primarily indicates that the pace of cuts remains very open for the next meeting.
PMI rose slightly thanks to the easing of contraction in the manufacturing sector, but this is not very encouraging since manufacturing has been contracting since the second half of 2022. For now, the service sector continues to drive economic growth, but the survey pointed out that economic growth is slowing further. New orders for the sector.
This means the economic outlook will remain sluggish at best for some time to come, and surveys show companies are responding by cutting jobs. The survey also shows that the weak economy and weak inflow demand also mean that the inflation environment remains favorable.
At the same time, the hard data for July and August was not too bad. This means that GDP growth in the third quarter may show an unexpected upside. However, survey data remain weak and this may prove to be a dead end. For the ECB, the debate over how quickly to move towards neutrality is sure to be heated ahead of the December Governing Council meeting.
