The recovery continues to lose momentum according to survey data released this morning. The closely-watched Composite PMI for activity eased to 52.3 in September, slightly below the August’s figure, but almost two points below the July’s reading. Although the survey still signals that output probably increased in Q3 (the average is 52.9), the dynamics of activity suggested by the survey is a case of concern, hinting that the zone is far from being in heathy shape. The September’s reading is the lowest since December 2013, and the Q3 average the lowest for the year.
Activity growth decelerated in the services sector while it was stable in the manufacturing. Yet, the pace of growth is much more muted in manufacturing than in services. The former, highly sensitive to external demand, has particularly suffered from the intensification of tensions with Russia. Sentiment in the German manufacturing sector, which has strong ties with Eastern-Europe, has suffered the most. While, in April, the German manufacturing output index was at 58, suggesting output growth above potential, it is now signalling stagnation. Manufacturing output in the other largest economy of the area, France, is performing poorly. However, the problems here are probably more related to the weakness of demand than to geopolitical tensions. According to Markit, the compiler of the survey, output in the French manufacturing sector has been contracting since May. A problem of lack of domestic demand is also evident from the results of the services PMI survey. The French services activity index came in below the 50-threshold, the lowest level since June, while services output growth accelerated in Germany, which is, undoubtedly, a positive sign.
Against a general backdrop of slowing activity growth, firms are not increasing their demand for labour, and are still offering discounts to stimulate demand. To sum up, today’s figures are not very encouraging. Activity growth has probably remained lacklustre in Q3. Going forwards, a more accommodative monetary policy stance and a weaker euro might bring some relief to activity.
BY Clemente DE LUCIA
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