Euro area PMIs reveal downside risks for Spain, Italian services resilient

Economic activity in the euro area was little changed last month, supported by incoming new orders, according to final readings on two closely-followed surveys, albeit weaker than expected in Germany, Spain and Italy.

IHS Markit's service sector Purchasing Managers' Index for September held at a a reading of 54.7 points, in-line with the 'flash' estimate and above August's print of 54.4.

The reading on the 'composite' euro area output index, which includes manufacturing, was marked down from a preliminary 54.2 to 54.1, with readings for Spain and Italy both revised down by 0.2 percentage points to 52.5 and 52.4, respectvely.

Germany's composite output index was also revised lower, by 0.3 points to 55.0.

But that for France was bumped up, by 0.4 points to 54.0.

Analysts at both IHS Markit and Oxford Economics noted the slowdown in Spanish growth to a near five-year low, while in Italy it had remained close to a two-year low.

In France meanwhile, the rate of expansion was the weakest in 21 months, although it remained "robust", according to the survey compiler.

Input cost inflation remained "sharp", IHS Markit added, and were most acute in Germany.

Commenting on the survey results, Chris Williamson at IHS Markit said: "although running close to a two-year low, the disappointing September PMI remains at a relatively elevated level and signals solid growth.

"[...] The most worrying signs come from exports. Trade flows have more or less stalled, which represents a marked contrast to the record rate of export growth seen at the end of last year. While service sector growth remained resilient in September, it would be unusual for this to be sustained in the absence of improved manufacturing growth."

For his part, Moritz Degler at Oxford Economics pointed out how the Spanish services PMI, together with signals for a slowing labour market recovery, pointed to 'downside' risks to his forecast for third quarter GDP growth of 0.6%.

On a more positive note, Degler the 0.9 point pick-up seen in the Italian services PMI to 53.3 suggested that firms had thus far remained unscathed from worries around the country's fiscal position and volatility in its sovereign bond market.

Degler also expected Eurozone growth to become increasingly reliant on domestic demand and services, helped by a plateauing in oil prices that would boost households' real income.