Eurozone Private Sector Activity Shrinks For Fifth Month

Driven by the deepening downturn in both services and manufacturing activity, the euro area private sector shrank for the fifth month in a row in October with output falling the most over a decade if the pandemic period is excluded.

The flash composite output index posted 46.5 in October, down from 47.2 in September, the purchasing managers’ survey data from S&P Global and Hamburg Commercial Bank AG showed on Tuesday.

Excluding the pandemic months, private sector activity shrunk the most since March 2013.

Things are moving from bad to worse, HCOB Chief Economist Cyrus de la Rubia said.

“We wouldn’t be caught off guard to see a mild recession in the Eurozone in the second half of this year with two back to back quarters of negative growth,” the economist added.

The downturn was broad-based in October as manufacturing output decreased for the seventh successive month and the service sector shrunk for a third month.

The manufacturing sector posted the deepest downturn since 2009 barring the pandemic lockdown period. The factory Purchasing Managers’ Index unexpectedly declined to a three-month low of 43.0 from 43.4 in September. The PMI score was expected to rise to 43.7.

The services business activity index fell to 47.8 in October from 48.7 in the previous month. The reading matched expectations and hit a 32-month low.

At the composite level, the drop in new orders was the largest since May 2020. Moreover, the fall in orders was sharper than the decline in output. As a result, backlogs of orders depleted at a rate not seen since June 2020.

Firms were forced to reduce employment due to the downturn in orders and the accelerated fall in backlogs of orders. Input buying by manufacturers slid at one of the sharpest rates since April 2009.

Regarding prices, the survey showed that input cost in factories fell sharply, while service sector input costs rose due to higher fuel prices. Average prices charged for goods and services rose at a marginally weaker rate in October.

Further, there was a marginal improvement in confidence for the year-ahead period but the overall level was among the weakest seen over the past year.

The survey showed that the downturn in the euro area was broad-based. Germany’s contraction accelerated on the back of a renewed drop in services activity and a further manufacturing slump.

France’s contraction moderated in October, thanks to a softer service sector decline helping offset a further steep factory downturn.

Germany’s private sector contracted for the fourth straight month in October. The HCOB composite output index ticked down to 45.8 in October from 46.4 in September.

Although manufacturing remained the main drag, the latest contraction reflects a renewed decline in the service sector.

The services PMI posted 48.0 in October, down from 50.3 in the previous month. The manufacturing PMI rose to a five-month high of 40.7 from 39.6 a month ago.

Despite an increase, there was solid reduction in the French business activity. The composite output index registered 45.3 in October, up from September’s 34-month low of 44.1.

While there was sustained declines at both manufacturers and service providers, trends diverged as a softer fall in services activity contrasted with the biggest contraction in factory production since May 2020.

The manufacturing PMI dropped to 42.6 from 44.2 in the previous month. The expected score was 44.4. The services PMI registered 46.1, up from 44.4 in September and above economists’ forecast of 44.6.

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