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Eurozone Composite PMI Falls to 48.2 in September - S&P Global

·3 min read

By Scott Kanowsky

Investing.com -- A downturn in Eurozone business activity deepened in September, sliding to its lowest mark in 20 months, as pressure on companies from soaring inflation increased.

S&P Global's flash composite purchasing managers' index for the eurozone dropped to a reading of 48.2, down from 48.9 in August and in line with economists' estimates. A level below 50 indicates contraction.

When removing the numbers registered during COVID-19 lockdowns, September's deceleration in PMI is the steepest for the currency area since 2013, highlighting the strong headwinds facing the Eurozone economy.

Activity in both the manufacturing and services sectors dropped, touching 19- and 28-month lows, respectively, due to surging prices - particularly from a spike in energy costs linked to a recent reduction of Russian gas supplies - causing consumers to rein in spending and adding to companies' expenses.

“A eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“The early PMI readings indicate an economic contraction of 0.1% in the third quarter."

New orders for goods and services slumped for a third straight month, S&P Global said, as "[m]anufacturing orders fell especially severely, but service sector new business inflows also fell at an increased rate, in both cases declining faster than output to hint at a further acceleration of output losses in October."

Employment growth was unchanged after it hit a 17-month low in August, which S&P Global said reflected growing reticence from employers to hire new workers.

On a country-by-country basis, Germany - Europe's largest economy - recorded its weakest PMI since May 2020 at 45.9, with its services industry suffering its biggest dip in activity in a little over 13 years. Manufacturing business activity, a central piece of the German economy, also slipped, but reduced supply chain constraints helped moderate the rate of decline.

Output expanded in France, coming in at 51.2, after it nearly stalled in August. Weakness in French factories was offset by an acceleration in the growth of its key services sector.

Analysts at ING warned that, with the summer tourism season in Europe coming to an end, there are few opportunities left for "catch-up events" for the continent's firms. They said the pessimism was further reflected in a deterioration of Eurozone consumer confidence to a record low in September.

"[C]onsumers are starting to become more cautious in spending as energy bills rise across the monetary union," the ING analysts said in a note.

They added that they believe the latest PMI data confirms their opinion that the Eurozone is facing so-called "stagflation" - a period marked by high inflation, rising unemployment, and low growth.

S&P Global's Williamson said the numbers also underline the difficulty European Central Bank policymakers face in their attempt to tame price growth while simultaneously avoiding a prolonged recession in the Eurozone economy.

The ECB has been hiking interest rates at its fastest pace ever, but prices remain stubbornly high, with long-term expectations now starting to register above the central bank's 2% target. Earlier this week, ECB president Christine Lagarde flagged that rates may need to rise to a level that holds growth back in order to stem demand and cool down red-hot inflation.

The EUR/USD was trading in the red against the dollar in the wake of the PMI readings after weakening to a 20-year low earlier on Friday, while the Germany 10-Year yield touched 2% for the first time since 2013.

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