The Eurozone HCOB Flash Purchasing Managers’ Index (PMI) showed a marked reversal in business activity in September, the first in seven months. The Eurozone HCOB Flash Manufacturing PMI Output Index came in at 44.5, down from 45.8 in August, its lowest level in nine months. The Composite PMI came in at 48.9, down from 51.0 in August, while the Composite Services PMI came in at 50.5, down from 52.9 in the previous month, marking a seven-month improvement.
The data, collected between 12 and 19 September, revealed a renewed decline in business activity in the private sector. The decline was driven by a decline in new orders, with new business falling at the fastest pace since January. As demand and existing business volumes continued to weaken, business confidence fell to a ten-month low, prompting firms to cut workforce numbers for the second month in a row. Weak demand also slowed input cost inflation.
Companies The industrial sector recorded a notable decline, with output falling for the 18th consecutive month at the fastest pace since the start of the year. Although in the services sector continued to pick up, the increase was marginal, and the weakest since February. After the positive activity linked to the Olympic Games in August, the French private sector saw a return to contraction in September, bringing it in line with Germany, where the pace of decline in activity was the most pronounced since February. While the rest of the eurozone saw some recovery at the end of the third quarter, the pace of expansion was modest, and the weakest since January.
After business activity saw a rebound in August, French private sector output returned to contraction in September, joining Germany in seeing a notable decline in activity.
Euro area output and demand
The euro area composite Purchasing Managers’ Index (PMI), based on responses from around 85% of respondents to the S&P Global survey, fell below 50.0 in September, down from 51.0 in August. This indicates a significant decline in business activity, and is the first reading below 50.0 in seven months.
The slowdown in manufacturing output has continued for the 18th consecutive month, with the region showing clear signs of a deepening downturn in September. Output fell at a notable pace, the sharpest since the start of 2024.
Despite the challenges in manufacturing, the euro area’s services sector saw some modest growth at the end of the third quarter, but the expansion was marginal and the slowest since February. The results reflect divergence across countries, with the continued decline in France contrasting with steady growth in the services sector in Germany and the rest of the region.
Business activity continued to see a decline in new orders for the fourth month in a row, with the latest decline particularly marked and the sharpest since the beginning of the year. New orders in the services sector fell for the first time in seven months, while new orders in manufacturing continued to contract.
Economic analysis
Commenting on the preliminary PMI data, Dr Cyrus de la Rubia, Chief Economist at Commerzbank Hamburg, pointed out that the eurozone is heading towards recession. After a temporary recovery due to the impact of the Olympics on France, the region’s leading economy, the composite PMI fell in September to a 15-month low, putting it below the expansionary threshold.
With new orders falling rapidly and order backlogs growing, it does not take much guesswork to predict further weakness in the economy. Industry is in a more chaotic state every month, with the recession lasting 27 months in September.
Business confidence in Europe continues to fall: Employment and prices continue to fall
Business confidence continued to decline, falling for the fourth month in a row, to its lowest level since November last year. The data showed that overall sentiment was weaker than average, with a particular decline among manufacturers. The decline was mainly due to a pessimistic outlook in Germany, where firms expected output to fall for the first time in a year. However, sentiment improved slightly in France and the rest of the eurozone.
Employment
Alongside the decline in new orders, firms also reported a further decline in backlogs of work at the end of the third quarter. The decline in outstanding work has continued over the past year and a half, with the latest decline being the fastest in ten months. As a result, firms cut employment again in September, a second consecutive month. Although modest, the decline was the sharpest since December 2020, when the manufacturing workforce was reduced to its lowest level in more than four years. In contrast, employment in the services sector continued to increase, but at a slower pace since August 2023.
Prices
A weak demand environment helped ease inflationary pressures in September. Input cost inflation slowed sharply, reaching its lowest level since November 2020. Manufacturing input prices saw their first decline in four months, while service providers recorded their weakest rise in costs in three and a half years. On the other hand, output prices rose slightly, but to the lowest level since February 2021, when the current inflationary cycle began. The slower rise in service charges was accompanied by a renewed decline in manufacturing selling prices, with slower increases in output prices seen in Germany and the rest of the euro area, while France saw its first decline in charges since February 2021.
