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Euro zone business growth eases in September to a four-month low - PMI

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By Reuters
Euro zone business growth eases in September to a four-month low - PMI
The headquarters of the European Central Bank (ECB) and the skyline with its financial district are seen in the early evening in Frankfurt, Germany, September 30, 2018. REUTERS/Kai Pfaffenbach   -   Copyright  KAI PFAFFENBACH(Reuters)

By Rahul Karunakar

(Reuters) – The expansion in euro zone business activity eased in September to a four-month low, driven by the weakest factory growth in two years that was only partly offset by a pick-up among services providers, a survey showed on Wednesday.

IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), seen as a good guide to economic health, eased to a four month-low in September of 54.1 from August’s 54.5.

That was below an earlier flash estimate of 54.2, but held well above the 50 mark which separates growth from contraction.

Optimism about the future brightened a bit at the end of the third quarter from a near-two-year low. The composite future output PMI rose to 62.1 from 61.6.

But manufacturing activity has dwindled across the euro currency bloc this year, in line with evidence of moderation elsewhere around the globe.

That suggests overall economic growth in the currency bloc is well past its peak and the pace of business activity is likely to ease further in coming months.

“Although running close to a two-year low, the disappointing September PMI remains at a relatively elevated level and signals solid growth,” noted Chris Williamson, chief business economist at IHS Markit.

“However, the fourth quarter is unlikely to see such robust growth, as recent months have seen a clear loss of momentum in terms of both output and new order gains.”

The surveys point to quarterly euro zone economic growth of 0.5 percent. That is slightly higher than a 0.4 percent consensus in a recent Reuters poll of economists, who unanimously said that the U.S.-China trade war threatened the already modest outlook. [ECILT/EU]

Manufacturers are increasingly concerned about barriers to global trade, which was clear from the readings of forward-looking factory PMI survey indicators. Growth in new export orders eased to the lowest in more than five years.

The latest surveys show a clear divergence between performance by euro zone services and manufacturing firms.

Services activity picked up to the highest in three months, as measured by the final services PMI at 54.7, which matched the flash reading but was higher than 54.4 in August.

Services firms hired at a slightly faster pace than in August, too. The employment sub-index rose to 55.5, not seen since October 2007, during boom times before the last financial crisis. It was 55.3 in August.

“While employment gains remained historically high, a steady erosion in the rate of order book growth so far this year suggest the appetite to hire will soon wane without any notable upturn in new order inflows,” added Williamson.

“With business confidence about the outlook running at one of the lowest seen over the past two years, companies are clearly not expecting any such imminent turn-around in demand.”

(Reporting by Rahul Karunakar; Editing by Hugh Lawson;; +91 80 67496115; Reuters Messaging: