By According to recent data from a purchasing managers’ survey, business activity in the eurozone contracted in September, although at a slower pace compared to previous months. The survey showed that new orders experienced the sharpest decline in nearly three years.
The HCOB Flash Eurozone Composite PMI Output Index, which measures activity in the manufacturing and services sectors, increased to a two-month high of 47.1 in September, up from 46.7 in August. Although this reading indicates contraction as it fell below the 50 no-change mark, it still exceeded economists’ expectations. Experts polled by The Wall Street Journal had predicted the PMI to decrease to 46.5.
Earlier on Friday, French PMIs revealed that the country’s economy contracted at its steepest rate in almost three years, while German data showed a contraction as well, albeit at a slower pace compared to the previous two months.
The HCOB survey also highlighted that new orders in the 20-nation bloc experienced their fourth consecutive monthly decline, with the most significant drop since November 2020.
In terms of specific sectors, the manufacturing sector continued to decline, with the index falling to 43.4 in September, down from 43.5 in August.
Eurozone Manufacturing Continues to Struggle
The eurozone manufacturing sector is facing further challenges as the order situation continues to deteriorate, according to Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. Companies are reducing their stock of purchased goods, which is contributing to the decline in purchasing activity.
Although the decline in purchasing activity has slowed down, de la Rubia believes that destocking may hit its lowest point in the coming months. This is an important condition for a potential recovery in the manufacturing sector next year.
Services Sector Contracts, Input Prices on the Rise
In September, the eurozone services activity contracted again, but this time at a less steep rate compared to August. This is a concerning trend for the European Central Bank, especially since input prices have accelerated while output prices continue to rise, albeit at a slower pace.
De la Rubia notes that the increase in input prices indicates a potential risk of a wage-price spiral that the ECB needs to closely monitor.
Limited Job Creation Amid Economic Uncertainty
Although businesses in the eurozone continued to expand their staffing levels in September, the rate of job creation remained marginal. This reflects the overall gloomy outlook for the economy, as revealed by the survey.
Forecast Predicts Contraction in Third Quarter
Hamburg Commercial Bank’s forecast for eurozone gross domestic product (GDP), taking into account the Purchasing Managers’ Index (PMI) figures, suggests that the economy will contract by 0.4% in the third quarter.
These challenges highlight the ongoing struggles faced by the eurozone and the need for coordinated efforts to stabilize and revive economic growth.
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