Germany downturn drags eurozone to near stagnation
German companies shed more jobs this month than they created for the first time in six years, according to figures that underscore how a slump in the EU’s largest economy has dragged down the rest of the eurozone.
After 14 months of falling new orders from abroad and a steep drop in sales across the manufacturing sector in October, the German economy’s slide to the brink of recession appeared to be continuing unabated.
IHS Markit’s flash composite output index for Germany – which is based on approximately 85% of the usual monthly replies – registered 48.6, little changed from September’s near seven-year low of 48.5 and below the 50 no-change level for the second month in a row.
The composite index, which covers the services and manufacturing sectors, showed the drop in overall employment, the first since 2013, tracked a fall in work and a deterioration in business confidence about future activity.
IHS Markit said its report found that firms kept staff busy working through backlogs of orders for the 12th month in a row and at the quickest rate for nearly seven years.
Analysts said the year-long decline in German output had dragged down the 19-member eurozone to near stagnation. The flash composite index for the eurozone increased to 50.2 in October, up marginally from 50.1 in September, “to signal the second smallest expansion of output across manufacturing and services since the current upturn began in July 2013”.
The small signs of green shoots from France, which increased its exports, Italy and other parts of the eurozone, will cheer Mario Draghi, who has his last meeting as president of the European Central Bank on Thursday.
Last month the ECB revived its stimulus programme after a decline in inflation and GDP growth showed the eurozone was heading for a period of contraction.
As a counterweight to the deterioration in Germany, business activity picked up in France, registering the third-largest expansion of output in 11 months. New orders and jobs growth also quickened.
But Chris Williamson, the chief business economist at IHS Markit, said the composite index showed the eurozone economy grew by only 0.1% in July to September, down from the 0.2% growth recorded between April and June and well below long-term trends.
He said the uncertainty created by Brexit negotiations, the US-China trade war, and the global slowdown were all hurting eurozone companies.
“The eurozone economy started the fourth quarter mired close to stagnation, with the flash PMI pointing to a quarterly GDP growth rate of just under 0.1%. The manufacturing downturn remains the fiercest since 2012 and continues to infect the service sector, where October saw the smallest increase in new work for almost five years,” Williamson said.
“The labour market is, meanwhile, being hit as firms retrench amid signs of excess capacity and uncertainty about the year ahead intensifies. Optimism about future prospects deteriorated further in October to the lowest for over six years, commonly linked to global trade tensions, Brexit-related worries and increasingly gloomy economic forecasts.
“A further deterioration in jobs growth adds to the risk that the trade-led weakening is spreading further to the household sector, which could dampen growth further as we head towards the end of the year.”
He added: “The survey indicates that Mario Draghi’s tenure at the helm of the ECB ends on a note of near-stalled GDP, slower jobs growth, near-stagnant prices and growing pessimism about the outlook, piling pressure on Christine Lagarde to drive new solutions to the eurozone’s renewed malaise.”