Europe's September PMI raises stagflation concerns
2min read The latest HCOB Flash Eurozone PMI data for September 2024 indicates a renewed decline in business activity across the eurozone, with the Composite PMI Output Index falling to 48.9 from 51.0 in August, marking an eight-month low. This drop below the 50.0 mark signifies a contraction in overall business activity, driven largely by continued weaknesses in the manufacturing sector. The Manufacturing PMI Output Index decreased to 44.5 from 45.8 in August, marking the lowest point in nine months and extending the sector's downturn to 18 consecutive months. Meanwhile, the Services PMI Business Activity Index also declined, falling to 50.5 from 52.9 in August, a seven-month low, indicating marginal growth in the service sector.
Compared to the prior month, all three PMI indices show a worsening economic environment in the eurozone, with the manufacturing sector particularly struggling. The deeper contraction in manufacturing is notable, with sharp reductions in output, new orders, and employment, particularly in Germany and France. Services, while still growing slightly, are experiencing their slowest pace of expansion since February, reflecting the broader economic challenges. The data highlights a troubling trend of weakening demand, with new orders falling at the sharpest rate since January, affecting both manufacturing and services.
The commentary accompanying the PMI release emphasizes that the eurozone is heading towards stagnation. The drop in new orders and the ongoing decline in the order backlog suggest that economic activity may weaken further in the coming months. The outlook is particularly grim for the manufacturing sector, where the recession has persisted for over two years, and September's data shows no signs of recovery. The labor market is also feeling the strain, with manufacturing jobs being cut at the fastest pace since August 2020, while employment growth in the service sector has slowed significantly.
Inflationary pressures in the eurozone appear to be easing, with the rate of input cost inflation slowing sharply to the lowest level since November 2020. Manufacturing input prices decreased for the first time in four months, and while service providers still face rising costs, the increase is the weakest in three and a half years. Output prices have also risen only slightly, with manufacturing even seeing a renewed fall in selling prices. This softer inflation outlook could provide some relief, but it also reflects the weak demand environment across the eurozone.
The overall sentiment among eurozone businesses is deteriorating, with confidence dropping to its lowest level since November last year. Manufacturers, in particular, are pessimistic, with German companies predicting a fall in output for the first time in a year. The decline in business confidence and the weakening economic indicators suggest that the eurozone may face further economic challenges in the near term. The ECB's close watch on inflation, particularly in services, means that the slowdown in price increases could influence future monetary policy decisions.
In summary, the latest PMI data paints a bleak picture of the eurozone economy, with significant contractions in manufacturing and only marginal growth in services. The slowdown in both sectors, coupled with easing inflation, could prompt the ECB to consider additional monetary easing measures, although the market has yet to fully price in such a move. The data underscores the ongoing challenges facing the eurozone as it grapples with stagnation and the potential for further economic decline.