Eurozone PMI beats expectations in October

Economic recovery in the Eurozone gained momentum in October, driven by higher demand for services, figures released on Friday showed.

The latest flash Markit Purchasing Managers’ Index (PMI) survey showed its composite index rose to a two-month high of 54 in October compared with a reading of 53.6 in the previous month and analysts’ expectations for a 53.4 reading.

The increase was largely driven by growth in output in the services sector, which rose to a two-month high of 54.2 compared with forecast of 53.5 and up from 53.7 in September.

Growth of new business edged higher, reaching a six-month peak, while 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.

Growth in the manufacturing sector was flat from the previous month, although it exceeded expectations for a decline from 52 to 51.7.

Meanwhile, the manufacturing output index slid to a five-month low of 53.3 in October, declining from 53.4 in September.

“The renewed fall in output prices meanwhile suggests that inflation will remain in negative territory as we head towards the end of the year,” said Markit’s chief economist Chris Williamson.

“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.”

However, while job creation hit a five-month peak in services, it waned to an eight-month low in manufacturing.

“While data today suggests that growth in the Eurozone is still on the slow side – with figures frozen at a four-month low – they could be seen as relatively positive in the circumstances," said Dennis de Jong, managing director at UFX.com.

“ECB president Mario Draghi has reason to believe that his stimulating strategy is doing the trick but, unfortunately, the effects of China’s slowdown are almost impossible to avoid.

“China’s demand may continue to wain and, as we’ve seen in recent days with the UK steel industry, factories are beginning to bear the burden.”