Eurozone economy 'close to stagnation' - IHS Markit

The eurozone economy "remained close to stagnation" at the start of the fourth quarter, according to figures released by IHS Markit on Thursday.

The flash eurozone manufacturing purchasing managers' index was unchanged at 45.7 in October, beating expectations for a reading of 46.0 but remaining below the 50.0 level that separates expansion from contraction for the ninth month in a row.

Meanwhile, the services PMI printed at 51.8 this month from 51.6 in September, coming in below expectations of 51.9. This marked one of the weakest expansions for the sector since 2014.

The composite PMI - which measures activity in both the manufacturing and services sectors - ticked up to 50.2 in October from 50.1 the month before, coming in below the 50.3 expected and extremely close to the 50.0 level.

The flash manufacturing PMI for Germany inched up to 41.9 in October from 41.7 the month before, while the services PMI came in at 51.2 from 51.4. The composite PMI printed at 48.6 from 48.5 in September. German private sector employment contracted for the first time in six years, mostly due to manufacturing, where staffing numbers fell at the sharpest rate in a decade.

This marked a significant contrast with France, where the manufacturing PMI rose to 50.5 in October from 50.1 the month before and the services PMI edged up to 52.9 from 51.1. The composite PMI came in at 52.6 versus 50.8 in September.

Chris Williamson, chief business economist at IHS Markit, said: "The manufacturing downturn remains the fiercest since 2012, and continues to infect the service sector, where October saw the smallest increase in new work for almost five years.

"The labour market is meanwhile being hit as firms retrench amid signs of excess capacity and uncertainty about the year ahead intensifies. Optimism about future prospects deteriorated further in October to the lowest for over six years, commonly linked to global trade tensions, Brexit-related worries and increasingly gloomy economic forecasts.

"The survey indicates that Mario Draghi’s tenure at the helm of the ECB ends on a note of near-stalled GDP, slower jobs growth, near-stagnant prices and growing pessimism about the outlook, piling pressure on Christine Lagarde to drive new solutions to the eurozone’s renewed malaise."

Jessica Hinds, European economist at Capital Economics, said: "While it was somewhat encouraging that the manufacturing output index did not fall further in October, it remained close to multi-year lows and suggested that the euro-zone industrial recession has further to run. The services PMI also only edged up, adding to evidence that the weakness in manufacturing is spilling over into services.

"All in all, the PMIs will make for uncomfortable reading at the ECB’s policy meeting later today and will lend weight to the doves’ calls for further policy action."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the German PMI data "still look ugly".

"We don’t pay too much attention to the services index, but the survey’s overall message is clear; the German economy is in recession. We reckon the Q3 GDP numbers will confirm this - with a second consecutive quarter-on-quarter fall in GDP- though it is too soon to say whether Q4 will be similarly poor."