Business World

Wednesday 18 October 2017

Euro zone business recovery weakens unexpectedly in November - PMI

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European union flag

The fragile recovery in the euro zone private sector weakened unexpectedly this month despite resurgent growth in Germany, as French business activity took a tumble, surveys showed today.

Markit's Eurozone Services Purchasing Managers' Index (PMI), which gauges business activity across thousands of service sector companies large and small, fell to 50.9 in November from 51.6 last month.

It was the weakest reading in three months and undercut even the lowest forecast from 32 economists polled by Reuters, although the index held above the 50 line dividing growth in activity from contractions.

Overall, the survey underlined how lopsided the euro zone's recovery from recession is towards growth in Germany, with the rest of the bloc struggling to sustain momentum.

France in particular, where business activity unexpectedly shrank, was the weakest link in the euro zone this month.

"The French data were a key cause of the decline, but there was also an easing evident in the rest of the region," said Chris Williamson, chief economist at survey compiler Markit.

"Output outside France and Germany did rise for the fourth month in a row, suggesting the region is returning to growth - but the concern is that the rate of increase we saw in November did slide to the weakest we've seen in those four months."

Williamson added the survey was consistent with euro zone economic growth of around 0.2pc in the current quarter, in line with the latest Reuters poll of analysts on Wednesday.

The euro zone economy grew 0.1pc from July through September, according to an early official estimate last week.

"It is important to remember that it is still growing," said Williamson.

Order books at services companies, which range from major international banks to high street hairdressers, filled at a roughly unchanged rate compared with last month.

Manufacturers fared better this month, helped by the fastest rise in new export orders since May 2011.

Markit's Eurozone Manufacturing PMI rose to 51.5 in November from October's 51.3. That was its best showing in the five months since factories broke their almost two-year run of declining activity.

While output growth slowed marginally, the survey showed factories cut staff at a slower pace this month, with the employment index rising to 49.1 from 48.8.

The composite PMI, which combines the manufacturing and services data, slipped to 51.5 from 51.9 last month, undershooting all forecasts in a Reuters poll.

However, it brought mixed news on inflation pressures.

While companies cut prices charged to customers at a faster rate, input prices such as businesses' energy bills increased at the fastest rate in almost a year.

"It is a concern that companies' margins are being squeezed," said Williamson, although he noted falling prices also reflect improving productivity in euro zone businesses that are trying to cut prices to win business.

 

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