October Eurozone PMIs reveal German growth surge as France slows
Economic activity in the Eurozone at its quickest pace this year led by a surge in Germany which offset a slight slowdown in France, according to IHS Markit’s PMI survey data.
“October’s PMI is consistent with a quarterly GDP growth rate of 0.4%, led by a 0.5% pace of expansion in Germany. Modest growth of 0.2-0.3% is being signalled for France, but there are various indicators which suggest that France will enjoy stronger growth in coming months, including a marked build-up of uncompleted work,” said chief economist at IHS Markit Chris Williamson.
The preliminary Eurozone PMI composite output index rose to a 10-month high at 53.7 compared to 52.6 in September, signalling the fastest monthly increase in business activity since December last year. This was above the consensus forecast of 52.8.
Germany led the expansion, growing at its second fastest pace so far this year. Manufacturing reported the largest gains in production over the past two and a half years and the service sector recovered from September’s slump to near stagnation.
Employment growth in the Eurozone's largest economy hit a five-year high and the increase in average selling prices was the joint-largest seen over the past four and a half years.
In contrast, the expansion slowed in France to one of its weakest paces over the past two years, but October's reading nevertheless marked a recovery from September’s 21-month low.
This was due to a rise in factory output growth to a two and a half year high being offset by a slower rate of service sector expansion. Backlogs of work jumped to their highest since May 2011 despite a slowdown in new orders and the rate of employment. Selling prices continued to fall but at their slowest rate for just over a year.
For the Eurozone overall, new order growth was the highest since January leading to the biggest rise in employment for three months.
“The Eurozone economy showed renewed signs of life at the start of the fourth quarter, enjoying its strongest expansion so far this year with the promise of more to come. With backlogs of work accumulating at the fastest rate for over five years, business activity growth and hiring look set to accelerate further as we head towards the end of the year,” said Williamson.
The manufacturing PMI output index was at a 10-month high at 54.4 compared to 53.8 in September and the services PMI activity index also rose to a nine-month high at 53.5 from 52.2. Manufacturers reported that the steeper rates of increase fed into stronger employment growth. Hiring in the service sector increased marginally, remaining close to September’s five-month low.
Despite this increase in staffing, firms struggled to keep pace with demand with backlogs of work piling up at the fastest rate since May 2011.
Average input costs also added to inflationary pressures, with costs rising at their steepest rate for 15 months, linked mainly to higher commodity prices as well as rising wage costs. Payroll growth in the goods-producing sector climbed to the highest since May 2011.
Average prices for goods and services also rose for the first time since August 2015.
In terms of the implications for monetary policy going forward, Williamson said: “Policymakers will be encouraged by signs of both stronger economic growth and rising price pressures, and the prospect of a robust fourth quarter will fuel further speculation of a possible tapering of quantitative easing (QE) purchases by the European Central Bank (ECB).”
Analyst at IG Josh Mahony commented on the results: “An impressive set of PMI survey readings out of the eurozone has ensured that mainland European markets are outperforming their UK counterparts, with early FTSE gains fading. Coming at a time when the euro is tumbling back to a seven-month low, it is clear that producers are enjoying somewhat of a renaissance following a period of uncertainty.”
Hense Florian from Berenberg expects growth in the fourth quarter to accelerate to 0.33% quarter on quarter (qoq), after 0.24% in the third quarter.