Euro Area services growth boosted expansion in October
The Euro Area economic upturn regained some momentum at the start of the fourth quarter. The Markit Eurozone PMI (purchasing managers' index) rose from September’s four month low of 53.6 to reach 54.0 in October, according to the flash estimate.
The latest reading remained slightly below that seen in August but still signalled one of the strongest monthly expansions seen over the past four years. Output rose across both services and manufacturing, pointing to a broad-based upturn. The former sector once again recorded the stronger gain, with the divergence widening as services growth accelerated slightly but factory production showed the smallest rise for five months.
Markit reports that the growth of new business also edged higher, reaching a six-month peak. Faster growth of inflows of new business in the service sector, which recorded the largest rise for six months, offset a weakening of new order growth in manufacturing. Signs of stronger demand and a further build-up of work-in-hand encouraged firms to take on extra staff, driving overall employment growth slightly higher after the slowdown seen in September. However, while job creation hit a five-month peak in services, it waned to an eight-month low in manufacturing, often linked to firms seeking productivity gains in order to boost competitiveness.
Inflationary pressures remained weak during the month and the forward-looking indicators point point to a risk of growth slowing in November. Service sector expectations of activity in the year ahead hit a ten-month low, while the manufacturing orders-to inventory ratio dipped to its weakest for nine months. The region’s two largest economies — Germany and France — both saw growth accelerate in October, with the former enjoying the stronger pace of expansion. However, although still only modest, growth of business activity in France — a laggard in the region’s current recovery – was the secondfastest seen for just over four years. Growth also picked up slightly in the rest of the region, but remained below the pace seen earlier in the year.
Chris Williamson, chief economist at Markit said: “The PMI brings welcome news that the eurozone economy picked up some momentum in October. With new business growing at the fastest rate for six months, firms were encouraged to boost staffing levels again. However, the PMI remains at a level signalling a modest 0.4% quarterly rise in GDP, suggesting the region will struggle to attain more than 1.5% overall growth in 2015. The rate of job creation, although on the rise, remains insufficient to make serious headway into reducing unemployment.
“The renewed fall in output prices meanwhile suggests that inflation will remain in negative territory as we head towards the end of the year. “Unless the PMI business activity and price indices pick up significantly in coming months, the combination of relatively weak growth and deflation signalled by the survey will fuel expectations that the ECB will step up its quantitative easing programme at the December meeting.”