September flash PMIs show eurozone economy stagnating, UK still growing

BARCELONA (ICIS)–Initial purchasing manager index (PMI) figures for the eurozone reveal that the region’s economy is contracting, with the previously resilient services sector weakening and the manufacturing recession deepening.

The HCOB Flash eurozone composite PMI by S&P Global fell to 48.9 in September, showing that overall regional private sector business activity contracted for the first time in seven months; with a reading below 50 denoting a decline.

There was a sustained reduction in new orders with new business decreasing at the sharpest pace since January. New orders and volumes of outstanding business fell at a sharper rate and business confidence hit a ten-month low.

Companies scaled back their workforce numbers for the second month running while demand weakness resulted in slower inflation of both input costs and output prices.

The reduction in overall business activity was driven by a deepening downturn in eurozone manufacturing, where production decreased for the eighteenth month running and at the fastest pace year-to-date. Although services business activity continued to rise, the latest expansion was only marginal and the weakest since February.

After an Olympics-related boost in August, output in France returned to contraction in September, joining Germany where the pace of decline was the most pronounced since February. The rest of the euro area saw output rise again, although the pace of expansion was only modest and the softest since January.

MANUFACURING MALAISE DEEPENS
The downturn in eurozone manufacturing output extended to an eighteenth consecutive month, and showed signs of deepening in September. Production decreased at the sharpest pace in 2024 so far.

Declines in manufacturing were particularly marked in Germany and France, but the rest of the eurozone also posted a fall.

Services grew marginally, but at the slowest pace since February. A renewed decline in France contrasted with continued services growth in Germany and the rest of the euro area.

Services new business decreased for the first time in seven months, alongside a further contraction in manufacturing new orders, which quickened for the fourth successive month.

OUTLOOK DEPRESSED
Business confidence continues to wane, dropping for the fourth consecutive month to the lowest since November last year. Sentiment was also weaker than average, particularly among manufacturers. Euro area confidence was dragged down by a pessimistic outlook in Germany, where companies predicted a fall in output for the first time in a year. It ticked slightly higher in both France and the rest of the eurozone.

As well as cutting employment, eurozone manufacturers reduced purchasing activity and stocks of raw materials and finished products during September.

PRICE INFLATION WEAKENS
A weakening demand environment contributed to softer inflationary pressures in September. The rate of input cost inflation slowed sharply, easing to the lowest since November 2020. Manufacturing input prices decreased for the first time in four months, while service providers posted the weakest rise in costs for three-and-a-half years.

Output prices increased only slightly, and to the least extent since February 2021 when the current period of inflation began. A slower rise in service inflation was accompanied by a renewed fall in manufacturing selling prices.

Slower increases in output prices were seen in Germany and the rest of the eurozone, while charges in France decreased for the first time since February 2021.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said, “The eurozone is heading towards stagnation. After the Olympic effect had temporarily boosted France, the eurozone economy fell in September to the largest extent in 15 months. Considering the rapid decline in new orders and the order backlog, it doesn’t take much imagination to foresee a further weakening of the economy.”

He added, “Manufacturing is getting messier by the month.  The recession has now dragged on for 27 months and even worsened in September. Looking ahead, the sharp drop in new orders and companies’ increasingly bleak outlook for future output suggest that this dry spell is far from over.”

UK PMI SHOWS ECONOMY STILL EXPANDING
The S&P Global Flash UK PMI for September, also released today, shows that the private sector economy is still expanding, albeit at a slower rate than in August.

The UK PMI stood at 52.9 compared with 53.8 the previous month. There was a sustained upturn in business activity during September, marking 11 months of continuous expansion. However, output growth slowdowns in both manufacturing and services meant that the overall speed of recovery moderated for the first time since June.

Price inflation eased to a 42-month low in September. A weaker rise in prices charged by service providers more than offset an acceleration in factory gate price inflation.

Thumbnail photo: Installation of solar photovoltaic panels in Germany (Source: Jochen Tack/imageBROKER/Shutterstock)