Eurozone slowing, but not as much as feared
Positive signs will be welcomed by ECB as it looks to halt asset purchase scheme
Eurozone business growth slumped to a two-year low in October as growing trade tensions and tariffs, alongside rising political uncertainty, put a dent in exports and optimism, a survey showed on Tuesday.
However, while survey and official figures yesterday showed the slowdown is relatively widespread, the clouds over the Eurozone are not as dark as recently feared.
Any positive signs will be welcomed by policymakers at the European Central Bank as they look to halt their €2.6 trillion asset purchase programme by the end of the year, shutting off one of the main sources of stimulus to the Eurozone economy.
IHS Markit’s Eurozone Composite Final Purchasing Managers’ Index (PMI), seen as a good guide to economic health, fell to 53.1 in October from September’s 54.1, its lowest since September 2016. But it was above a 52.7 flash estimate and still comfortably higher than the 50 mark which separates growth from contraction.
“The underlying progress in the economy looks pretty solid,” said James Nixon at Oxford Economics.
Official figures showed that industrial orders in Germany rose just 0.3 per cent in September but a Reuters poll had predicted a 0.6 per cent fall, suggesting Europe’s biggest economy ended the third quarter on a solid footing.
And the final German services PMI was revised up to 54.7 from a preliminary reading of 53.6 — one of the biggest upward adjustments in the survey’s history.
Activity in France accelerated as companies stepped up hiring after an increase in new business and Spain’s service sector expanded at its fastest rate since June, also supported by growth in new business, earlier PMIs showed.
“October’s PMI data suggests that most of the major Eurozone economies will perform a little better in the fourth quarter than in the third quarter,” noted Jack Allen at Capital Economics.
Expansion
As a whole, the bloc’s economy expanded 0.2 per cent in the third quarter, official data showed late last month, and a Reuters poll predicted it would be 0.4 per cent this quarter.
But Italy’s service sector contracted for the first time in more than two years last month in a sign the Eurozone’s third largest economy is struggling.
Markets barely moved after yesterday’s releases as traders braced for midterm elections in the United States and some potentially lively sessions ahead.
Muddying the outlook for the region, Italy’s government is in a stand-off with the European Commission over its borrowing and long-standing German Chancellor Angela Merkel has said she would not be seeking re-election as head of her party.
Whether Britain and the European Union part ways amicably and an ongoing trade war between the United States and China also took its toll on business optimism. The future output index fell to a near fouryear low of 60.5 from 62.1.
“There are clearly negative headwinds coming from the fears of trade protectionism and stock markets have had a bit of a wobble,” Nixon said.