Eurozone’s manufacturing leads contraction in September

Jonathan Lopez


MADRID (ICIS)–The eurozone’s manufacturing sectors led the downturn in September but services continued contracting, putting the economy on a downward trend at the end of the third quarter, S&P Global said on Friday.

The September flash composite PMI – manufacturing and services together – stood well below the 50.0 points mark, which shows economic contraction. Data were collected 8-20 September.

New orders – a key measure to gauge upcoming demand levels – posted the sharpest drop for almost three years.

“The overall reduction in output was again led by manufacturing, but the service sector saw activity decrease for the second month running. Although firms continued to expand their staffing levels in September, the rate of job creation was only marginal amid evidence of spare capacity and the gloomiest outlook since the final quarter of last year,” said S&P Global and Hamburg Commercial Bank, who jointly compile the PMI index.

“Despite the weak demand environment, input costs continued to rise sharply, and the rate of inflation even picked up from that seen in August. Output prices, meanwhile, increased at the softest pace in over two-and-a-half years amid muted pricing power.”

Eurozone flash PMI indices
(below 50.0 points = contraction)
September August
Composite (services + manufacturing) 47.1 46.7
Services 48.4 47.9
Manufacturing output (1) 43.4 43.4
Manufacturing (2) 43.4 43.5

Economic output has been falling for four consecutive months, although services output recovered slightly from August.

Manufacturing continued to post the worst figures. Barring a brief period of growth during Q1, the eurozone’s manufacturing output has decreased continuously since the middle of 2022.

“Central to the latest reduction in business activity was a further deterioration in customer demand, as highlighted by a fourth successive monthly decrease in new orders,” said the PMI authors.

“Manufacturing new orders contracted rapidly again, but the acceleration in the overall rate of decline was centred on the service sector, where the drop in new business was the sharpest since the pandemic.”

Sharp falls in new orders meant that companies often turned to work on outstanding business to maintain activity levels. This meant backlogs of work decreased markedly again during September, with the latest depletion the most pronounced since June 2020.

“Eurozone businesses also signalled a waning of confidence in the year-ahead outlook at the end of the third quarter. Although on balance firms continued to predict a rise in activity over the coming 12 months, sentiment dipped to the lowest since November last year,” they said.

“Optimism waned across both monitored sectors, with manufacturing sentiment only just in positive territory.”

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said the September PMI index showed a “grim picture”, but added there had also been some green shoots.

“Sure, activity has been reduced once again and new incoming business has been shrinking for three months in a row. However, companies are hiring in September at a somewhat faster pace than they did in August,” said de la Rubia.

“Thus, companies still show some resilience and optimism in the face of lower demand. Having said this, we expect the eurozone to enter a contraction in the third quarter. Our nowcast, which incorporates the PMI indices, points to a drop of 0.4% compared to the second quarter.”

1. The Manufacturing Output Index is based on the survey question “Is the level of production/output at your company higher, the same or lower than one month ago?”

2. Manufacturing PMI is a composite index based on a weighted combination of new orders (0.30); output (0.25); employment (0.20); suppliers’ delivery times (0.15); and stocks of materials purchased (0.10).


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