Pic: Markit Economics

Flash purchasing managers’ index (PMI) signals renewed economic downturn in Europe at the beginning of the fourth quarter. Business activity declined across the Eurozone in October as accelerating growth of manufacturing output was overwhelmed by a steepening deterioration in the service sector amid rising COVID-19 worries, according to IHS Markit.

Germany was the only bright spot, as France and the rest of the region as a whole fell deeper into decline, the company said in a news release.

The flash IHS Markit Eurozone Composite PMI fell for a third consecutive month in October, dropping from to 50.4 in September to 49.4 to register the first contraction of business activity since June.

Although the index remains well above the all-time lows seen during the height of the pandemic in the second quarter, the renewed decline raises the possibility that the region could see the economy contract again in the fourth quarter.

The rate of job losses eased, but forward –looking indicators deteriorated: inflows of new business showed a renewed decline and business optimism for the year ahead slipped to the lowest since May. Deflationary pressures, meanwhile, eased as business costs rose at a faster rate.

The survey also revealed increasingly divergent trends by sector. Manufacturing output growth accelerated to the fastest since February 2018. Conversely, service sector output fell for a second successive month, deteriorating at the sharpest rate since May.

If the March to May period at the height of COVID19 lockdowns is excluded, the latest drop in service sector output was the steepest for eight years.

Inflows of new business into the service sector also fell at an accelerated rate. Divergent trends were also seen across the region.

Germany continued to report steady growth, the flash composite index merely dipping from 54.7 to 54.5 to register a solid expansion for the fourth month running. Although manufacturing output grew at a rate surpassed only twice in the survey’s history since 1996, service sector activity fell for the first time since June.

France meanwhile saw business activity deteriorate for the second month running, the composite flash PMI down from 48.5 to 47.3 to signal an increased rate of contraction. A second month of services decline was accompanied by a weakening in the rate of factory output growth.

Elsewhere, business activity fell for a third month in a row, with the pace of decline running at the fastest since early-2013 barring the height of the pandemic. A solid expansion in manufacturing output was more than offset by an increased rate of contraction in services.

Employment was meanwhile cut across the Eurozone as a whole for an eighth successive month, though the rate of job losses moderated further from April’s record peak to the weakest since jobs began to be cut in March.

The pace of job cuts nonetheless remained higher than at any time since June 2013 prior to the pandemic. Job losses were seen across manufacturing and services, with the former recording the steeper rate of decline.

Reduced employment was seen in Germany, France and the rest of the region as a whole, but the former showed encouraging signs of the labour market nearing stabilisation.

The ongoing need to cut employment was in part linked to companies reporting excess capacity, as indicated by a further reduction in backlogs of work.

The decline in backlogs was limited to the service sector, with manufacturing reporting the largest increase since February 2018 (led in turn by Germany), underscoring the increasingly divergent trends by sector.

Looking at price trends, deflationary pressures moderated during October. Average prices charged for goods and services fell for an eighth month running, but the rate of decline eased to the slowest seen over this period.

Average prices charged in manufacturing edged higher, up for the first time since June 2019, though service sector charges continued to fall. Germany saw the largest upturn in price pressures, with average selling prices up for the first time since February.

Signs of underlying price pressures building were evident via the largest rise in input costs since February. Increases were reported in both manufacturing and services.

Looking ahead, business expectations about the coming 12 months slumped to the lowest since May, deteriorating in both manufacturing and services, with the latter seeing a particularly steep drop in sentiment. Optimism was also especially subdued in France.

Commenting on the flash PMI data, Chris Williamson, chief business economist at HIS Markit said: “The Eurozone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October.”

Fibre2Fashion News Desk (DS)

More Textiles News - United Kingdom...

Flash PMI signals renewed economic downturn in Eurozone