Europe Faces Grim Outlook for Economic Recovery

Eurozone Faces Economic Stagnation: Latest Macroeconomic Data

The Eurozone is taking a step back from its anticipated growth trajectory and is edging closer to stagnation, according to the latest macroeconomic data released.

This month, the economic activity in the region experienced a sudden and unexpected contraction, based on the preliminary PMI readings for September.
The services sector has experienced a slowdown, while the decline in manufacturing has intensified, raising concerns that the Eurozone’s recovery momentum may have run its course.

Much of the weakness in the Eurozone can be attributed to Germany, where producers are grappling with a combination of adverse factors such as declining global demand, increasing competition from China, and domestic structural issues.
However, the entire region is exhibiting a slow pace of economic activity growth.

The Absence of Economic Recovery in Europe

The preliminary composite PMI index for the Eurozone, compiled by S&P Global, dropped to 48.9 this month from 51.0 in August, marking the first fall below the 50 threshold since February, which distinguishes growth from contraction.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented, “The Eurozone is heading toward stagnation.
With the rapid drop in new orders and the order book, it does not take much imagination to foresee further economic deterioration.”

The services PMI index fell from 52.9 to 50.5, below all expectations in a Reuters survey that had predicted a decline to 52.1.
Additionally, concerning figures emerged from the manufacturing PMI, which has remained below 50 for over two years; it dropped to 44.8 from 45.8, whereas it was anticipated to reach 45.6.
A production index also decreased to 44.5 from 45.8.

This weaker activity is impacting the labor market, where producers are cutting jobs at the fastest rate in over four years.
Employment in the services sector continues to grow, but at the slowest pace since August 2023.

“We expect official employment data in the Eurozone, which has remained stable thus far, to worsen in the coming months, although demographic trends should provide greater stability compared to previous recessions,” de la Rubia noted.

In this context, business optimism is waning, indicating that procurement managers do not foresee a quick turnaround.

Germany Pulls Europe Into Crisis

German economic activity recorded its fastest contraction in seven months this September.

The HCOB Composite Purchasing Managers’ Index, compiled by S&P Global, fell to 47.2 from 48.4 in August, below the 48.2 predicted in a Reuters survey.
Any reading below 50 indicates contraction.

The survey suggests that the German economy, which contracted by 0.1% in the second quarter, has continued to decline into the third quarter.
A recession is normally defined as two consecutive quarters of contraction.

The manufacturing sector remains trapped in recession, with the index plummeting to 40.3 from 42.4 in August, surprising analysts who expected only a slight decrease to 42.3.

“The crisis in the manufacturing sector has once again intensified, dissipating any hopes of a swift recovery,” de la Rubia stated.
These alarming figures are likely to spark further debates in Germany regarding the risk of deindustrialization and what the government should do about it, according to experts.

Slowing Momentum in France

The recovery momentum has also slowed in France, where a rebound linked to the Olympics has quickly faded, and activity in the services sector has declined.
The overall activity indicator has pointed to another contraction following August’s growth.

Apart from the two largest economies in the Euro area, production has continued but at its slowest pace since January, according to S&P Global.
Overall inflation in the region has eased, with weakening pressures on both input and output prices.