Eurozone Economy is Stalling Shows Latest PMI Data

European economy

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PMI data out of the Eurozone on Monday, September 23 suggests the region's economy is on the brink of contraction, which will likely see calls for yet further supportive policy moves from the European Central Bank and a weaker-for-longer Euro.

Eurozone Manufacturing PMI read at 45.6 in September, down on the 47.0 recorded in August and the 54.3 expected by economists. The manufacturing slump will largely be driven by the ongoing slowdown in German manufacturing where data released earlier in the day confirmed the Eurozone's economic powerhouse is in danger of falling into a technical recession. 

The area's Services PMI read at 52.0, down on the 53.5 recorded in August and below the 53.3 forecast by economists.

The Composite PMI - which gives a broader measure of the economy - read at 50.4, below August's 51.9 and below economist expectations for a reading of 51.9.

According to IHS Markit - compilers of the report - the Eurozone economy came close to stalling at the end of the third quarter as demand for goods and services fell at the fastest rate in over six years.

IHS Markit say the deepening manufacturing recession, where output fell at the sharpest pace since 2012, was accompanied by a slower service sector expansion. Jobs growth and price pressures meanwhile waned and sentiment about the outlook remained among the lowest for seven years.

The goods-producing sector is going from bad to worse, suffering its steepest downturn since 2012, but a further worrying trend is the broadening-out of the malaise to the service sector, where the rate of growth has now slowed to one of the weakest since 2014," says Chris Williamson, Chief Business Economist at IHS Markit. "The details of the survey suggest the risks are tilted towards the economy contracting in coming months."

Eurozone Composite PMI

The data will heap pressure on Eurozone governments and authorities to come up with measures to reignite growth.

The European Central Bank (ECB) this month announced a fresh tranche of measures to encourage growth and inflation, and based on the current data the likelihood of further action is high.

"The weak data support our expectations that the ECB will have to ease monetary policy again in December. We expect another rate cut and an expansion of the asset purchase programme," says Tuuli Koivu, economist at Nordea Bank.

A side-effect of expanded ECB action is a weaker-for-longer Euro, and we therefore would see little chance of a sustained recovery in the Euro under currency circumstances.

"Today’s data add fuel to the idea that a recession in manufacturing is now about to drag the economy as a whole down, but we need a bit more evidence to make this our base case. Meanwhile for markets, the key story also is that policymakers are much more likely to respond with force, both fiscal and monetary, than to sit idle. How effective this 'put' is is very difficult to say, but it’s there," says Samuel Tombs, Economist with Pantheon Macroeconomics.

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