Another night of poor economic data from the Eurozone, not that this should come as any surprise. My base case under the current policy framework has long been a continually slowing Eurozone that would eventually reach even the strongest nations. I’ve stated that meme many times over the last 18 months:
Periphery nations weakening, France in the middle, Germany outperforming, but the whole ship slowly sinking.
And once again, unfortunately, the Markit PMI data follows along. These comments from Markit’s chief economist about last night’s release:
The Eurozone has slid further into decline at the start of the fourth quarter. The survey is running at a level which is historically consistent with the region’s economy contracting at a quarterly rate of over 0.5%. Official data have shown surprising resilience over the summer compared to the survey data, but the underlying business climate has clearly deteriorated markedly in recent months. While GDP may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter.
The financial markets may have cheered the positive developments from policymakers in seeking to resolve the region’s debt crisis, notably the promise of bond market intervention by the ECB, but business appears to have been less impressed. Sentiment about prospects for the year ahead are now the gloomiest since early-2009, when the post-Lehman Brothers crisis was in full swing.
In addition to worries about the health of domestic markets, companies are also seeing demand weaken further afield, notably in Asia and, to a lesser extent, the US.
Worries about the outlook have translated into further job losses, suggesting companies are moving increasingly into cost-cutting mode. Even Germany is not immune, with October seeing the first back-to-back monthly fall in employment since early-2010.
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So the Eurozone continues behave as expected under the circumstance. To the detail:
Eurozone downturn deepens at start of fourth quarter as PMI hits 40-month low
Flash Eurozone PMI Composite Output Index(1) at 45.8 (46.1 in September). 40-month low.
Flash Eurozone Services PMI Activity Index(2) at 46.2 (46.1 in September). Two-month high.
Flash Eurozone Manufacturing PMI(3) at 45.3 (46.1 in September). Two-month low.
Flash Eurozone Manufacturing PMI Output Index(4) at 44.8 (45.9 in September). Two-month low.
The Eurozone sank further into decline at the start of the fourth quarter, with the combined output of the manufacturing and service sectors dropping at the fastest rate since June 2009.
The Markit Eurozone PMI Composite Output Index fell for a third successive month, down from 46.1 in September to 45.8 in October, according to the preliminary ‘flash’ reading based on around 85% of usual monthly replies. Output has fallen continually since September of last year with the exception of a marginal increase in January.
Output continued to fall in response to a further marked contraction in new orders. The rate of decline in new business eased slightly since September, which had seen the largest drop since June 2009.
Slightly weaker rates of decline in both business activity and new orders in the service sector contrasted with faster contractions in the goods- producing sector. Subsequently, manufacturing again saw the steeper downturn of the two sectors.
By country, Germany saw only a mild fall in output. The rate of decline gathered pace on September, but remained less severe than in both July and August. In contrast, a steep contraction was again seen in France. Output there fell only slightly more slowly than in September, suggesting that France remains in its steepest downturn since early-2009.
A worse performance was again seen outside of France and Germany, however, where output fell on average at the fastest rate since May. This extended the sequence of sharp decline that has been evident throughout the past year.
Manufacturing weakness behind moderate drop in German private sector output during October
Flash Germany Composite Output Index(1) at 48.1 (49.2 in September), 2-month low.
Flash Germany Services Activity Index(2) at 49.3 (49.7 in September), 2-month low.
Flash Germany Manufacturing PMI(3) at 45.7 (47.4 in September), 2-month low.
Flash Germany Manufacturing Output Index(4) at 45.9 (48.4 in September), 2-month low.
At 48.1 in October, the seasonally adjusted Markit Flash Germany Composite Output Index was down from 49.2 during September and signalled a further moderate reduction in overall private sector business activity. The index has now posted below the neutral 50.0 value for six consecutive months. With the latest reading close to the average for Q3 2012 (47.9), the latest survey suggests an ongoing lack of momentum across the German private sector economy.
Lower levels of output were recorded in both the manufacturing and service sectors during October, with the former indicating the sharper decline over the month. The slight drop in services activity followed signs of stabilisation during September, while the sub-50 index reading for manufacturing production was the seventh in as many months.
Manufacturers pointed to a sharp and accelerated decrease in new orders intakes during October, thereby extending the current period of decline to 16 months. Reports from survey respondents overwhelmingly cited weakness in export markets, especially southern Europe. A number of firms also mentioned subdued demand from the automobiles sector. Some panel members pointed to signs of a slowdown in Asia, especially for investment goods. Overall levels of new work from abroad in the manufacturing sector dropped at the second-fastest rate since April 2009 (only exceeded by the fall this August).
Further marked contraction of French private sector output at start of Q4
Flash France Composite Output Index(1) rises to 44.8 (43.2 in September), 2-month high
Flash France Services Activity Index(2) climbs to 46.2 (45.0 in September), 2-month high
Flash France Manufacturing PMI(3) at 43.5 (42.7 in September), 2-month high
Flash France Manufacturing Output Index(4) rises to 41.6 (39.4 in September), 2-month high
The performance of the French private sector economy remained weak in October. The latest Flash PMI® data signalled only a slight easing in the rate of decline of output from September’s three- and-a-half year record. The Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, registered 44.8, showing only a small rise from the previous figure of 43.2.
Although moderating since the previous month, rates of contraction remained considerable for both services and manufacturing output.
Panellists generally attributed lower activity levels to a further drop in incoming new business. The index measuring overall new work was only marginally above September’s 41-month low, and remained indicative of a steep pace of decline. Anecdotal evidence pointed to weak demand conditions amid a difficult economic climate. There were reports that clients, especially some firms in the autos sector, had postponed orders and reined in investment due to a lack of confidence in the outlook. Manufacturers again recorded a particularly steep drop in new work, primarily reflective of domestic weakness but also affected by the fastest fall in export sales since May 2009.
The rate of decline in employment in the French private sector remained marked in October, holding steady from September’s 33-month record. Job shedding was broad-based across the manufacturing and service sectors.
Lower staffing levels did not prevent companies from making further inroads into their backlogs of work in October. The latest decline in outstanding business was substantial, although weaker than September’s 40-month record.
Of particular concern is the German new orders data:
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Manufacturers pointed to a sharp and accelerated decrease in new orders intakes during October, thereby extending the current period of decline to 16 months. Reports from survey respondents overwhelmingly cited weakness in export markets, especially southern Europe.
In normal times I would expect to see a run up in new work in the lead up to the end of year, but it just isn’t coming. The austerity grinch appears to have stolen Christmas this year, which has meant the German IFO survey has also become “unexpectedly” weak:
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 100.0 from 101.4 in September. That’s the sixth straight decline and the lowest reading since February 2010. Economists predicted an increase to 101.6, according to the median of 39 forecasts in a Bloomberg News survey.
According to the business leaders questioned in October 2012, the industrial economic situation deteriorated markedly : the synthetic indicator plunged by five points.
The turning point indicator is in the unfavorable area. Business leaders consider that the rhythm of activity remains very weak: the balance of opinion is very low.
Looking at the personal production outlook, the business leaders are also pessimistic about their future activity. Total and export order books decreased and are considered as very low.
The general production outlook, which represents business leaders’ opinion on French industry as a whole, weakened anew; the balance of opinion reached a very low level.
Stocks of finished products increased and are rated as near their long-term average.
And this all comes on top of yesterday’s news from the Bank of Spain that the Spanish economy will shrink by 0.4% in Q3 totalling a 1.7% decline over the year. The Spanish finance ministry has stated that this year’s deficit estimate has been revised upwards again to 7.4% of GDP , over 1% above the original target of 6.3%, with warning of worse to come. I recently talked about why I expect the same here.
All up this data is horrid. There is nothing good in any of it and forward indicators suggest we are nowhere near the bottom. That certainly appears to be the warning from the Bundesbank on the Germany economy:
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The German economy, Europe’s largest, may shrink in the current quarter after expanding in the previous three months as weaker global growth weighs on export demand, the Bundesbank said.
“There are increasing signs that a perceptible expansion of economic growth in the third quarter of 2012 will be followed by stagnation or even a slight decrease in gross domestic product in the final quarter of the year,” the Frankfurt-based central bank said in its monthly report today. German GDP rose 0.3 percent in the second quarter.
Unsurprisingly, given all the other indicators, employment prospects across the zone continue to weaken:
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So the Grinch is also continuing to stoke the fires of social and political unrest.
