Eurozone economy suffers fresh contraction at end of third quarter
Data were collected 12-25 September 2024
The euro area economy suffered a fresh setback at the end of the third quarter as total business activity decreased for the first time since February. According to the latest HCOB PMI® survey data, which are compiled by S&P Global, private sector output decreased marginally when compared to August. Notably, the currency bloc’s big-three nations – Germany, France and Italy – recorded contractions simultaneously for the first time in 2024 so far. Demand for euro area goods and services meanwhile fell at the quickest pace in eight months, leading to backlog reductions and a slightly faster rate of job cutting. Business confidence also weakened fractionally, taking it further beneath its long-run average.
September survey data revealed another marked easing of cost pressures faced by eurozone companies. The increase in input prices was the softest in 14 months, and the second-weakest since November 2020. Output charges were also lifted to the smallest extent in just over three-and-a-half years.
The seasonally adjusted HCOB Eurozone Composite PMI Output Index – a weighted average of the HCOB Manufacturing PMI Output Index and the HCOB Services PMI Business Activity Index – fell into contraction territory in September for the first time since February. Down from August’s three-month high of 51.0 to 49.6, the headline index was indicative of a marginal decrease in private sector business activity at the end of the third quarter. Trends at the sector level worsened in September. Euro area factory production recorded an accelerated decline that was the fastest in the year-to-date, while services growth slowed to a seven-month low.
The big-three economies of the currency bloc – Germany, France and Italy – all registered month-on-month contractions in business activity during September. Germany spear-headed the downturn, with private sector output here falling for a third month in a row and at the fastest pace since February. France suffered a renewed contraction, partly reflecting some payback following August’s boost from the Paris Olympic Games. Italy meanwhile saw its first month of decline in the year-to-date, although the pace of contraction was only marginal. Expansions were seen in the two other countries for which Composite PMI data are available – Spain and Ireland – with the former registering a sharp and accelerated upturn.
According to the latest data, the level of new business received by private sector firms in the euro area shrank for a fourth successive month. Additionally, the pace of decrease quickened to the steepest since January. A renewed (albeit marginal) deterioration in demand for services was accompanied by a rapid drop in new factory orders. Export sales performances worsened, with the fastest fall in new business from non-domestic customers since last December providing a considerable drag on total order book volumes.
Surveyed businesses in the euro area recorded another monthly fall in their volumes of outstanding workloads, extending the current period of backlog depletion to a year-and-a-half. The rate of decrease was also slightly faster than seen on average over this sequence. Completion rates picked up in both the manufacturing and services sectors in September.
Eurozone firms stepped up headcount reductions at the end of the third quarter. Although the rate of job shedding was marginal, it was the joint-fastest since December 2020 (matching January 2021, as well as November and December 2023).
Lower employment levels were entirely a reflection of the manufacturing economy as factory lay-offs were sufficiently strong to more than offset modest job creation within the service sector.
Meanwhile, euro area business confidence continued to weaken in September, marking a fourth month in a row that firms’ sentiment has deteriorated. Albeit still optimistic overall, 12-month expectations for activity were at their lowest in the year-todate.
Finally, the HCOB PMI data revealed a further marked easing of cost pressures across the eurozone. Overall, the rate of input cost inflation was the second-slowest November 2020, with July 2023 narrowly undershooting that seen in September. The extent to which euro area companies raised their own prices also eased at the end of the third quarter. Overall output charges increased only modestly and to the weakest extent in just over three-and-a-half years. includes intra-eurozone trade. Countries ranked by Composite PMI Output Index: September Spain 56.3 4-month high Ireland 52.1 3-month low Italy 49.7 9-month low France 48.6 (flash: 47.4) 6-month low Germany 47.5 (flash: 47.2) 7-month low