Eurozone Private Sector Undergoes Renewed Downturn

The euro area private sector returned to negative territory for the first time since June as accelerating growth of manufacturing was offset by a sharp deterioration in the service sector amid rising Covid-19 worries, flash survey data from IHS Markit showed Friday.

The composite output index fell to a four-month low of 49.4 in October from 50.4 in September. A score below 50 indicates contraction. The reading was above economists’ forecast of 49.3.

The renewed decline raised the possibility that the region could see the economy contract again in the fourth quarter, Markit said.

Manufacturing output growth accelerated to the fastest since February 2018, while the service sector output fell for a second successive month, deteriorating at the sharpest rate since May.

The manufacturing Purchasing Managers’ Index rose to a 26-month high of 54.4 from 53.7 a month ago. The score was expected to fall to 53.1.

Meanwhile, the services PMI declined to 46.2 from 48.0 in the previous month. This was the lowest reading in five months and below economists’ forecast of 47.0.

At composite level, output dropped for the first time in four months. At the same time, new orders decreased moderately in October.

Employment was cut across the euro area as a whole for an eighth successive month, though the rate of job losses moderated further.

On the price front, the survey showed that deflationary pressures moderated in October. Average prices charged for goods and services fell for an eighth month running. Meanwhile, input costs increased both in manufacturing and services.

Looking ahead, business expectations about the coming twelve months slumped to the lowest since May.

Germany was the only bright spot, as France and the rest of the region as a whole fell deeper into decline, the survey showed.

Germany’s flash composite index dropped merely to 54.5 from 54.7 in September, to register a solid expansion for the fourth month running. Economists had forecast the index to fall to 53.2.

The services PMI dropped to 48.9 from 50.6 in the previous month amid new restrictions and heightened uncertainty due to a second wave of coronavirus cases. The expected reading was 49.2.

Meanwhile, the manufacturing PMI advanced unexpectedly to a 30-month high of 58.0 from 56.4 in September. The score was forecast to fall to 55.1.

On the other hand, France saw business activity deteriorate for the second month running. The flash composite PMI was down more-than-expected to 47.3 from 48.5 to signal an increased rate of contraction. The expected level was 48.0.

The manufacturing PMI fell marginally to 51.0 in October from 51.2 in September. At the same time, the services PMI decreased to 46.5 from 47.5 in the previous month.

Chris Williamson, chief business economist at IHS Markit said, “While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November.”

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