Eurozone manufacturing remains at seven-year low at start of fourth quarter

LONDON (ICIS)–Manufacturing in the eurozone started the fourth-quarter much as it ended the third, deep in contraction with factory output in October falling for a ninth successive month.

The Purchasing Manager’s Index (PMI) for the month was flat with September at 45.7 points, remaining at a seven-year low not seen since the height of the sovereign debt crisis in the 19-country currency area.

A figure below 50 indicates contraction while a number above that level shows expansion. Manufacturing in the eurozone accounts for between 10% and 20% of GDP, depending on country.

“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%,” said Chris Williamson, chief business economist at IHS Markit, which compiles the index.

“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.”

By country, business activity fell for a second successive month in Germany to mark the worst period of decline since 2012.

“The rate of loss of factory output eased but remained among the steepest since 2009. Services growth meanwhile hit the weakest since September 2016, as new business fell at the steepest rate for over six years,” said IHS Markit.

In contrast, business activity picked up in France, registering the third-largest expansion of output over the past 11 months.

“New orders and jobs growth also quickened. Service sector growth accelerated to one of the strongest rates seen over much of the past year, accompanied by a modest return to growth of manufacturing output after a brief slide in September.”

It said exports were the key divergence between France and Germany, with the former recording modest growth in new business from abroad while Germany’s exports remained in steep decline.

Williamson added: “The survey indicates that Mario Draghi’s tenure at the helm of the ECB [European Central Bank] 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.”

ECB president Draghi will chair his final interest rate-setting meeting later on Thursday. .

He is due to hand over to former International Monetary Fund (IMF) head Lagarde on 1 November.