Eurozone facing contraction – S&P

Manufacturing and services have declined further, data shows

Private-sector activity in the Eurozone is continuing to shrink, suggesting the area’s economy will likely contract in the third quarter as the downturn in manufacturing has deepened, data compiled by S&P Global revealed on Friday.

HCOB’s flash Composite Purchasing Managers’ Index (PMI) for the bloc, a measure reflecting overall economic health, rose slightly to 47.1 in September from August’s 33-month low of 46.7. However, economists warn that the reading is clearly below the 50 level that indicates a contraction, adding that the Eurozone will not return to growth anytime soon.

The numbers for PMI services in the euro area “paint a grim picture,” according to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“We expect the Eurozone to enter a contraction in the third quarter,” he said. “Our nowcast, which incorporates the PMI indices, points to a drop of 0.4% compared to the second quarter.”

Output in the Eurozone has been shrinking for four consecutive months, led by a deepening decline in manufacturing, data shows. 

READ MORE: Germany at risk of becoming ‘Sick Man of Europe’ – Deutsche Bank

“The main drag continues to come from manufacturing where the order situation deteriorated further,” de la Rubia said.

September’s PMI readings were negative for both manufacturing, which has been below 50 for 15 months, and services, according to the latest figures.

The EU’s largest economies, Germany and France, were the main drivers of the extended downturn in the euro area’s business activity despite expectations of some stabilization, S&P Global said.

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