Eurozone Manufacturing and Services Sectors’ Output Declines in October

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on Nov 6, 2012

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Eurozone Manufacturing and Services Sectors’ Output Declines in October

The Eurozone combined output in manufacturing and services fell at the fastest rate since July 2009, shows the Markit Eurozone PMI Composite Output Index. The index dropped to 45.7, down from 46.1 in September and below earlier flash estimateof45.8. According to the survey, overall activity has now fallen for nine straight months.

In October both the manufacturing and services sectors contracted at faster rates than the previous month. Manufacturing production declined for the eighth consecutive month as new work orders decreased and trade remained weak. The services sector plunged at the sharpest pace since July 2009. The only positive performance came from Ireland where manufacturing and services combined reached their highest level in 20 months.

Steep contractions were signalled for France, Spain and Italy in October, although the rates of contraction eased slightly compared to September’s figures. Germany reached a two month low of 47.7, adding to a sense of gloom in the country where business sentiment has worsened, joblessness risen and the government last month cut its 2013 growth forecast by 0,6 percent to 1 percent. “At its current level, the composite PMI figure raises the likelihood of an outright GDP contraction during the final quarter of the year,” Markit senior economist Tim Moore commented on Germany’s Composite PMI.

!m[Factory Prices Barely Increase Yet Inflation Remains Above Eurozone Target](/uploads/story/729/thumbs/pic1_inline.png)Underlying the October decline in the Eurozone’s economic activity was a further reduction of new work. The big three nations, Germany, France and Italy, all saw new orders fall but to lesser extent than in September. Further job losses were registered as companies adjusted their production capacity in line with weaker demand for goods and services. “Sentiment is still being hit hard as companies worry about the dual impact of weak domestic demand and a slowing global economy. This is likely to hit growth in the coming months, especially at a time when cost-caution at manufacturers and service providers is filtering through to the wider economy through rising job losses, reduced purchasing and inventory depletion.” said Rob Dobson, economist at Markit.

**Factory Prices Increase Marginally**
According to the EU’s statistics office Eurostat prices at factory gates in the Eurozone countries increased in September by 0.2 percent – the smallest margin in three months. Consumer inflation was 2.5 percent in October compared with a year ago, down from 2.6 in September.
Policymakers from the European Central Bank (ECB) last met on 4 October when they decided to keep interest rates at a record low of 0.75 percent – a level expected to remain unchanged in the coming weeks. Investors are now keenly waiting on further details from the ECB’s bond-buying programme.

“Some things have improved in the last two or three months, but I think the road ahead is still long and it’s uphill,” ECB’s President Mario Draghi said of the economy last month.
A further reduction in interest rates would lessen the cost of borrowing for struggling households in the Eurozone but economists believe the impact will be modest at best because commercial banks are cautious to lend, especially when it comes to the poorer, indebted Eurozone members.