Euro zone economy likely contracted in Q3-PMI

LONDON – The euro zone economy is likely to contract in the third quarter and will not return to growth anytime soon, a survey shows, even as the bloc’s slump in business activity eased somewhat in September.

HCOB’s Flash Composite Purchasing Managers’ Index (PMI) for the eurozone, compiled by S&P Global and seen as a good gauge of overall economic health, rose to 47.1 in September, up from a 33-month low of 46 in August ,7.

While that was still below the 50 mark that separates growth from contraction, it exceeded expectations in a Reuters poll, down slightly to 46.5.

“The PMI services figures in the euro zone paint a grim picture,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding that he thought the economy would contract 0.4 percent this quarter.

“The biggest drag continues to come from production, where the order situation continued to deteriorate.”

READ: Eurozone factory activity fell in July at the fastest pace since the start of the COVID PMI

The decline in overall activity in September came despite the fact that companies barely increased their rates. The composite output price index fell from 53.3 to 52.2, the lowest level since early 2021.

That drop is likely to be welcomed by policymakers at the European Central Bank, which last week raised its key interest rate to a record high of 4 percent as they battle inflation.

The services PMI rose from 47.9 to 48.4, but remained below the break-even line for the second month this year. The Reuters poll had predicted a reading of 47.7.

READ: Eurozone services decline deepens economic gloom – PMI

As higher borrowing costs drain the disposable income of indebted consumers, they cut back on spending. The services sector new business index fell from 46.7 to 46.4 – the lowest level since February 2021.

The manufacturing PMI has been below 50 since mid-2022 and the latest index fell from 43.5 to 43.4, clouding expectations in the Reuters poll for a rise to 44.0.

An index that measures manufacturing and contributes to the composite PMI held steady at 43.4 last month.

Some of that activity came from factories completing existing orders. The work backlog index fell from 39.8 to 38.1, the lowest reading since the COVID pandemic tightened its grip on the world in May 2020.