Euro zone PMI signals slower October growth as demand cools

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Euro zone PMI slows in October

Highlights

Euro zone Composite PMI falls to 51.7 in October from 53.1 in September, a four-month low and below the 51.9 flash estimate.
Input price inflation hits a five-month high as higher energy costs squeeze household budgets, with firms still raising prices but at a slower pace than September.
France returns to contraction while Germany, Italy, Spain, and Ireland show slower growth, as euro zone employment edges down and business confidence weakens for a third month.

October survey points to slower fourth-quarter start

As reported by Reuters, citing S&P Global, the euro zone Composite Purchasing Managers' Index falls to 51.7 in October from 53.1 in September, below the preliminary estimate of 51.9 and marking a four-month low. A reading above 50.0 still indicates expansion, but the latest survey suggests activity is growing at a slower pace across the bloc.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says the October PMI data indicate the euro zone economy is growing at a respectable but unexciting 0.3% pace at the start of the fourth quarter, building on stronger performance through the third quarter. New orders rise only marginally, services demand edges lower and export orders increase for a third straight month but lose momentum.

Both manufacturing and services output continue to expand, though at slower rates, pointing to a broad-based cooling. The euro zone services PMI, which feeds into the composite index, declines to 51.4 from 53.0 in September, also a four-month low.

Cost pressures and national divergence shape outlook

Employment dips marginally in October, with services firms leading the decline and partly offsetting a slight increase in factory headcounts. Input price inflation climbs to a five-month high, while businesses continue to raise charges sharply, though slightly less aggressively than in September.

Williamson says higher energy prices are driving further upward price pressures, squeezing household budgets and discouraging spending. Business confidence weakens for a third consecutive month and remains below its long-run average.

Across major member states, France is the weakest performer and slips back into contraction after a brief recovery in September. Germany, Italy, Spain and Ireland continue to grow, but all lose momentum. The softer survey data come after the European Central Bank leaves interest rates unchanged last week, while economists polled by Reuters last month say another rate increase is expected in December.

Mario Draghi’s warning on the risks of keeping interest rates above growth rates highlighted how prolonged tightening can worsen debt dynamics and pressure central banks, even as they focus on bringing inflation down. Our publication previously noted his argument that policymakers should aim for the lowest rate path consistent with price stability to avoid unnecessarily damaging investment, productivity and longer-term growth, alongside EU-level measures to support strategic investment.

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