Eurozone September PMI points to weakening economy

The Eurozone’s Composite Purchasing Manager’s Index (PMI) for September shows that the region’s economy continues suffering from declining output and poor new order growth in the third quarter, according to figures published on Thursday by Markit Economics.

The Markit Eurozone PMI Composite Output Index for September dropped to 52, a ten-month low, compared to August’s 52.5.

The average Composite PMI reading for Q3 2014, at 52.8, was the lowest this year, while growth in new business was the weakest since October 2013.

Manufacturing growth in September was the same as in August, which itself was very low.

Growth in services activity and new business both posted six-month lows in September.

Eurozne September PMI

(Source: Markit Economics)

Weak and strong economies with the Eurozone

Spain and Ireland posted the strongest expansion, albeit at weaker rates compared to August. Germany was the only Eurozone nation to post a slight increase in output expansion, where strong services growth offset a continued slowdown in manufacturing.

Italy and France posted steep declines. In France, both manufacturing production and service sector activity registered sharp falls. In Italy, manufacturing expanded marginally, while the service sector plummeted.

Although payroll numbers across the Eurozone increased, the numbers were virtually statistically insignificant. With backlogs of work declining to their lowest level since 2013, the creation of new jobs is likely to become even weaker.

Poor Q3 and even weaker Q4 GDP growth predicted

According to Chief Economist at Markit Economics, Chris Williamson, the Eurozone is still stuck in a rut in Q3 2014, after posting zero growth in Q2 2014. He predicts GDP (gross domestic product) growth of between 0.2% and 0.3% in the third quarter, with momentum lost into Q4 2014.

There are definitely pockets of growth within the region, Mr. Williamson pointed out, with the Spanish economy is still robust, and a strong German service sector.

Mr. Williamson added:

“The overall picture is one of a euro area economy that is struggling against multiple headwinds. These include a lack of domestic demand in many countries, subdued bank lending, sanctions with Russia and a reluctance of companies to expand in face of an uncertain economic outlook.”

“The survey showed growth of new orders sliding to the weakest for almost a year across the region as a whole, suggesting demand for goods and services is barely growing. Employment was help more or less unchanged again as a result, and a weakening of firms’ backlogs of orders suggests we could see headcounts start to fall again in coming months if this lack of demand persists.”

“The waning of growth signaled by the PMI will apply further pressure on the ECB to broaden the scope of its planned asset purchases, to not only buy riskier asset-backed securities but also start purchasing government debt.”

On Thursday, the Governing Council of the European Central Bank voted to start purchasing government assets, but did not say how much it will spend. It also decided to leave interest rates unchanged.