MNI DATA ANALYSIS: EZ PMI Slips to Two-Year Low in October

--IHS Markit/CIPS Flash EMU Composite PMI 52.1 in Oct vs 54.1 in Sep

By Jamie Satchi

     LONDON (MNI) - Euro area economic growth likely deteriorated further in

October, as an export-led manufacturing slowdown spread into the services

sector, the flash IHS Markit survey published Wednesday showed. 

     The Flash Eurozone Composite Purchasing Managers' Index (PMI), which is

typically based on 85% of respondent data, declined to a 25-month low of 52.7 in

October, down from 54.1 in September.

     While the index has signalled rising activity across the bloc for over five

years, standing above the neutral 50-threshold all throughout this period,

growth rates remain considerably below those delivered around the turn of the

year when activity peaked.  

     "The pace of Eurozone economic growth slipped markedly lower in October,

with the PMI setting the scene for a disappointing end to the year," said Chris

Williamson, Chief Business Economist at IHS Markit.

     "The survey is indicative of GDP growth waning to 0.3% in the fourth

quarter, and forward-looking indicators, such as measures of future expectations

and new business inflows, suggest further momentum could be lost in coming

months," he added. 

     October saw the seventh monthly decline in the past nine months and firms'

future expectations suggest the slowdown has further to run -- companies'

expectations of future growth slipped to the lowest level in almost four years. 

     --MANUFACTURING SLOWDOWN

     The slowdown in growth, as led by the manufacturing sector, which saw the

Eurozone manufacturing index slip to 52.1, a 26-month low, down from 53.2 in

September. Within this, the output index slumped to a 46-month low of 51.2 (vs

52.7 in September). Perhaps suggestive that the bloc's export-led boom may be

losing steam, the orders index fell for the first time since November 2014,

albeit only marginally. 

     --SLUGGISH SERVICES 

     The slowdown was not isolated to only manufacturing, with service sector

activity also easing on the month. The flash Eurozone services PMI fell to 53.3

in October - a two-year low - from 54.7 in September, with the month registering

the second-smallest gain in new business in almost two years. 

     "The slowdown is being led by a drop in exports, linked in turn by many

survey respondents to trade wars and tariffs, which appears to have darkened the

global economic environment and led to increased risk aversion. It is therefore

not surprising to see the slowdown broadening out across the economy, hitting

the service sector," Willamson said. 

     --EMPLOYMENT GROWTH WANES

     Hiring continued to rise, but the rate of jobs growth was the second-lowest

for just over a year, easing to a 22-month low in manufacturing and a

three-month low in services.

     Elsewhere, price pressures close to a seven-year high. Input price

inflation rose to a four-month high in October, registering the third-largest

monthly rise in costs since May 2011.

     --GERMANY SLOWS SHARPLY

     Within the Eurozone, growth moderated especially sharply in Germany,

sliding to the weakest level in three-and-a-half years. The German flash PMI

revealed the smallest gain in factory output for almost four years, accompanied

by the slowest service sector growth since May. 

     Of note, goods exports fell at the steepest rate since June 2013, a second

consecutive monthly drop. 

     Future expectations also sank to the lowest since late 2014, waning to a

near six-year low in manufacturing and a three-year low in services.

     Offsetting this, French business activity growth picked up slightly

although the October flash reading was still the third-weakest seen this year. 

     French service sector activity grew at the quickest pace for four months

but manufacturing output fell for the first time in over two years, led down by

an increased rate of loss of export business. 

     Business confidence fell in both sectors, down overall to the lowest for

almost two years and dropping especially sharply in the goods producing sector.

     --ECB WORRIED?

     The latest gauge of European economic activity, closely watched by many,

comes on the eve of the European Central Bank's latest policy decision and

Williamson said the data may make for uncomfortable reading for Draghi and co. 

     "Although the survey's price gauges remain elevated and close to seven-year

highs, the headline PMI has fallen to a level that would historically be

consistent with a bias towards loosening monetary policy in order to prevent any

further deterioration of economic growth," he said. 

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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