Eurozone business activity declined again in september led by manufacturing

Autor: Financial Market
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The eurozone private sector remained in contraction at the end of the third quarter of the year as waning demand led to a further decline in activity.

The overall reduction in output was again led by manufacturing, but the service sector saw activity decrease for the second month running.

Although firms continued to expand their staffing levels in September, the rate of job creation was only marginal amid evidence of spare capacity and the gloomiest outlook since the final quarter of last year.

Despite the weak demand environment, input costs continued to rise sharply, and the rate of inflation even picked up from that seen in August.

Output prices, meanwhile, increased at the softest pace in over two-and-a-half years amid muted pricing power.

Output and demand

The seasonally adjusted Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses, posted 47.1 in September, up marginally from 46.7 in August but still signalling a solid monthly decline in business activity as the third quarter drew to a close.

Output has now fallen in four consecutive months. For the second successive survey period, declines in output were seen across both monitored sectors as services activity decreased again.

That said, the rate of contraction in services eased slightly from August and was still much softer than that seen in manufacturing.

The reduction in manufacturing production was unchanged from the rapid pace seen in the previous month.

Except for a brief period of growth during the opening quarter of the year, euro area manufacturing output has decreased continuously since the middle of 2022.

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Central to the latest reduction in business activity was a further deterioration in customer demand, as highlighted by a fourth successive monthly decrease in new orders.

Moreover, the fall in September was marked and the most pronounced since November 2020. Manufacturing new orders contracted rapidly again, but the acceleration in the overall rate of decline was centred on the service sector, where the drop in new business was the sharpest since the pandemic.

In fact, excluding months affected by COVID-19 restrictions, the fall in services new orders was the largest since May 2013. New export orders declined even more quickly than total new business in September.

National trends
The euro area’s two largest economies – Germany and France – were the key drivers of the overall downturn in activity during September.

Germany saw output decrease for the third month running and at a solid pace, though one that was slightly softer than seen in the previous survey period.

Manufacturing production declined at the fastest rate since the opening wave of the COVID-19 pandemic, while services activity was down marginally.

The contraction in France was more stark, with activity decreasing to the largest extent since November 2020. Excluding pandemic affected months the reduction was the sharpest in over a decade.

Rates of decrease quickened across both manufacturing and services. The rest of the eurozone saw business activity remain broadly stable in September.

Although manufacturing output decreased for the sixth month running, the fall was the softest since April. Meanwhile, services activity increased slightly, and to a greater extent than in August.