The eurozone economy fell in October, indicating that weakness in the business sector is worsening
The eurozone economic downturn accelerated at the start of the fourth quarter, according to provisional PMI survey data for October, with private sector output declining at the steepest rate for over a decade if pandemic affected months are excluded.
New orders also fell at an accelerating rate, pointing to a worsening demand environment for both goods and services. Companies cut employment as a result, representing the first drop in headcounts since the lockdowns of early 2021, and remained focused on cost-cutting inventory management.
Despite some upward pressure on costs from higher oil prices, the rate of inflation for goods and services moderated slightly in October, down to its lowest since February 2021.
An ongoing sharp fall in manufacturing selling prices was accompanied by amoderation in service sector selling price inflation.
Thus, the seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses, fell from 47.2 in September to 46.5 in October, signalling a fifth consecutive month of falling business activity and the steepest decline since November 2020.
Excluding pandemic months, the fall in activity was the sharpest since March 2013. A broad-based downturn was again evident, as a seventh successive month of falling output in the manufacturing sector was accompanied by a third month of contracting service sector activity.
The goods-producing sector continued to report the steeper rate of contraction, the pace of output decline unchanged on the marked pace seen in September to indicate that factories remain in the deepest downturn since 2009 barring the early pandemic lockdowns.
With the exception of a brief period of growth during the opening quarter of 2023, euro area manufacturing output has decreased continuously since the middle of 2022, reflecting 18 months of continuously falling inflows of new orders into the sector.
New orders received by manufacturers fell sharply again in October, dropping at a slightly faster rate than September to sustain one of the sector’s steepest downturns in demand since 2009.
Service sector activity meanwhile contracted at an accelerating rate in October, dropping at a rate not seen since early-2021 and since May 2013 if the height of the pandemic is excluded.
Recent months have seen the service sector’s performance alter markedly, as a strong resurgence of activity earlier in the year has moved into reverse, in part reflecting a cooling of a postpandemic surge in spending on travel and recreation.
Measured overall, new business received by service providers fell for a fourth straight month in October, the rate of decline accelerating to the fastest since January 2021.
Measured across goods and services, the resulting drop in new orders was the largest since May 2020 and, if early pandemic months are excluded, since May 2009.
The drop in orders was also steeper than the reported decline in output, meaning companies once again relied on backlogs of previously-placed orders to help sustain activity levels. Backlogs of orders were consequently depleted at a rate not seen since June 2020, dropping at slightly faster rates in both manufacturing and services.