Eurozone economy stalls as data trigger fears of recession
The eurozone economy is close to stalling, dragged down by a steep drop in German manufacturing activity, according to a key survey of business executives that hit European markets and prompted predictions of imminent recession.
The purchasing managers’ index for the eurozone fell to a six-year low of 50.4 in September, below forecasts and down from 51.9 in August. The figures, produced by IHS Markit, offer a closely watched snapshot into private sector activity. A reading below 50 signifies economic contraction.
The euro fell 0.4 per cent against the US dollar and European stock markets fell after the data were released on Monday. The pan-European Stoxx 600 index was down almost 1 per cent, while Germany’s blue-chip Dax index fell 1.5 per cent.
“Today’s figures confirm one thing in any case: there will be no noticeable improvement in the economy this year,” said Ralph Solveen, economist at Commerzbank. “On the contrary, the risk of a recession is increasing.”
The European Central Bank cited slowing economic growth in the eurozone as one of the reasons for cutting interest rates further into negative territory and restarting its programme of bond-buying this month. But most economists are sceptical that the ECB’s loosening policy will do much to restore growth.
“The ECB is right to keep an accommodating policy stance, but its recent package will not make much difference and certainly won’t help the German car sector whatsoever,” said Dirk Schumacher, head of European macro research at Natixis.
The downturn in Germany’s critical manufacturing sector has deepened dramatically in September, dragging its wider economic activity to the lowest level since the depths of the eurozone crisis, according to a key survey of business executives.
The PMI for German manufacturing fell to 41.4 in September, from 43.5 the previous month, slumping to its lowest level since mid-2009. The figures underline how trade tensions, problems in the car industry, and Brexit uncertainties are weighing on the eurozone’s biggest economy.
Germany’s car sector has suffered a 12 per cent drop in production and a 14 per cent decline in exports this year, hit by a slowdown in the Chinese market and disruption from new environmental standards.
“The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralysing order books,” said IHS Markit’s principal economist Phil Smith.
The manufacturing PMI for the eurozone came in at 45.6, worse than economists polled by Reuters had expected, leaving the composite PMI at a 75-month low of 50.4.
The data from IHS also showed that the downturn in manufacturing was spreading to the larger services sector, in which the PMI was down from 53.5 to 52.
“The eurozone economy is close to stalling as a deepening manufacturing downturn shows further signs of spreading to the services sector,” said Chris Williamson, chief business economist at IHS.
In Germany the overall composite PMI fell from 51.7 to 49.1, the lowest reading since October 2012 and the first reading below the 50 threshold since April 2013. The rate of decline was the steepest in almost seven years.
On its current trajectory, the German economy might not see any growth before the end of this year, Mr Smith added.
French private sector economic activity grew more slowly than forecast in September, as its manufacturing sector was hit by a fall in exports. The French manufacturing PMI fell to 50.3, while services were at a four-month low of 51.6.
Martin Arnold and Philip Georgiadis