Euro Area: PMI points to stalling recovery amid divergent trends in September

Euro Area PMI September 2020

Euro Area: PMI points to stalling recovery amid divergent trends in September

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, pointed to a further slowdown in growth momentum in September. The index declined to 50.1 in September from 51.9 in August, marking the softest reading in three months. Despite the drop, the PMI remained marginally above the 50-threshold that distinguishes expanding from contracting business activity.

Although manufacturing production picked up, with growth hitting a 31-month high, the services sector saw activity swing from expansionary to contractionary territory in September due to rising coronavirus cases and renewed lockdowns. Similarly, new orders grew robustly in the manufacturing sector, while they fell notably in the services sector. Meanwhile, firms cut jobs for the seventh consecutive month, particularly in the services sector. On the price front, although input costs increased for the fourth month running—mainly due to higher virus protection costs—firms lowered selling prices to stimulate sales, which squeezed companies’ margins.

Assessing the Eurozone’s two largest economies, Germany continued to lead the recovery in September, supported by a robust surge in manufacturing output, while France saw business activity deteriorate as a contraction in services sector output more than offset an uptick in manufacturing production.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline as face-to-face consumer businesses in particular have been hit by intensifying virus concerns.”

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