Euro Zone Business Activity Contracts Sharply Amid Manufacturing and Services Slowdown

Business activity in the euro zone saw an unexpected and sharp contraction this month, as the bloc’s dominant services sector stagnated, and the manufacturing downturn accelerated, according to data released on Monday.

HCOB’s preliminary composite euro zone Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 48.9 in September from August’s 51.0, falling below the 50 mark that separates growth from contraction for the first time since February. This figure was well below the Reuters poll forecast of 50.5, indicating a faster and broader decline in economic activity than anticipated.

Key Highlights:

• Broad-Based Decline: The downturn appeared widespread, with Germany, the euro zone’s largest economy, experiencing a deepening decline, while France, the second-largest, slipped back into contraction after a temporary boost in August from the Olympics.
• Demand Weakens: Overall demand across the euro zone fell at its fastest pace in eight months, with the new business index dropping to 47.2 from 49.1, indicating weakening economic activity.
• Services Sector Stagnates: The services PMI declined to 50.5 from 52.9, falling below all expectations in the Reuters poll, which had predicted a milder easing to 52.1. This suggests that the services sector is facing mounting challenges.
• Easing Inflation: Despite the slowdown, there was some positive news as firms increased their charges at a slower rate. The services inflation index eased, with the output prices index reading at 52.0, down from August’s 53.7, marking its lowest level since April 2021.

This data underscores growing concerns about the euro zone’s economic resilience, as both manufacturing and services sectors struggle, signaling potential headwinds for the bloc’s overall economic performance in the months ahead.