Market Analysis

Euro zone business remains sluggish, PMI signals continued slowdown.

Amos Simanungkalit · 24 Oct24.6K Views

Image Credits: Reuters

Business activity in the euro zone remained sluggish in October, continuing its contraction as demand weakened both domestically and abroad, despite only minimal price increases by firms, according to a survey released on Thursday.

The HCOB composite euro zone Purchasing Managers' Index (PMI), compiled by S&P Global, edged up slightly to 49.7 in October from 49.6 in September, but remained below the 50-point threshold that separates growth from contraction for the second consecutive month. Economists polled by Reuters had expected a slight rise to 49.8.

“The euro zone economy is stuck in a mild downturn, shrinking for the second month in a row," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. He noted that while manufacturing continues to slump, modest growth in the services sector is helping to offset the decline.

The index for new business saw only a minor increase from its eight-month low in September, rising from 47.7 to 47.8, and the new export business index, which includes trade among euro zone countries, also remained in contraction territory.

Activity in the services sector, which is the largest part of the euro zone economy, weakened further, with its PMI slipping to 51.2 from 51.4, contrary to expectations for a rise to 51.5 in the Reuters poll. This dip occurred despite only slight increases in prices, with the services output prices index barely above September’s 41-month low, at 52.6.

Meanwhile, the European Central Bank has lowered interest rates three times this year, citing controlled inflation but worsening economic conditions.

Manufacturing activity, which has been declining for more than two years, saw a slight improvement. The factory PMI rose to 45.9 from 45.0, exceeding forecasts of a smaller rise to 45.3, and the output index increased to 45.5 from 44.9.

However, optimism for the year ahead dimmed, as the future output index dropped to a 12-month low of 52.3 from 53.6.