Eurozone business growth eases in September - IHS Markit

Business growth in the eurozone eased in September as trade war concerns and political uncertainty hit exports, according to preliminary data released on Friday.

IHS Markit's flash composite eurozone purchasing managers' index fell to 54.2 from 54.5 in August, hitting a four-month low and missing expectations for a reading of 54.4. The drop was attributed to weaker export sales.

The manufacturing index declined to a two-year low of 53.3 from 54.6, coming in below expectations of 54.4, while the eurozone services PMI printed at 54.7 compared to 54.4 in August and a forecast for an unchanged reading.

The survey found that manufacturing growth was subdued by exports stagnating for the first time in more than five years.

Chris Williamson, chief business economist at IHS Markit, said: "A near stagnation of exports contributed to one of the worst months for the eurozone economy for almost two years. Trade wars, Brexit, waning global demand (notably in the auto industry), growing risk aversion, destocking and rising political uncertainty both within the eurozone and further afield all fuelled the slowdown in business activity.

"Thankfully, the slowdown was limited to manufacturing. A buoyant service sector, boosted in part by domestic demand being supported by strong job gains, means the survey data are running at a level indicative of the economy growing by a solid 0.5% in the third quarter. However, with new orders and backlogs of work rising at much reduced rates compared to earlier in the year, export growth evaporating and future expectations remaining close to two-year lows, the risks to future growth appear tilted to the downside."

Capital Economics economist Jessica Hinds said that despite the softening, the composite PMI is still consistent with a fairly decent pace of growth and the European Central Bank is unlikely to changes its plans to normalise policy very gradually.

"On the basis of past form, the headline composite output index is consistent with quarterly GDP growth remaining around Q2’s 0.4%, which would be a bit faster than potential for the euro-zone. The breakdown showed that September’s decline entirely reflected a drop in the manufacturing output index, suggesting that slower global growth and the euro’s appreciation are weighing on the industrial sector.

"Rather worryingly for Q4, the manufacturing new export orders index fell below the 50 level for the first time since June 2013, while the manufacturing future output index was at its lowest in almost four years."