LONDON- Euro zone business growth stalled in September as an ongoing contraction in manufacturing activity is increasingly affecting the services industry, according to a survey which showed little chance of an improvement this month.
The results will make disappointing reading for policymakers at the European Central Bank who pledged last month to provide indefinite stimulus to revive the 19-country currency bloc’s ailing economy.
IHS Markit’s September Euro Zone Composite Final Purchasing Managers’ Index (PMI), considered a good indicator of overall economic health, sank to 50.1 from August’s 51.9.
That was below a preliminary reading of 50.4 and barely above the 50 mark separating growth from contraction.
“The euro zone economy ground to a halt in September, the PMI surveys painting the darkest picture since the current period of expansion began in mid-2013,” said Chris Williamson, chief business economist at IHS Markit.
“The downturn also shows further signs of spreading from manufacturing to services.”
A manufacturing PMI on Tuesday showed factory activity contracted at its steepest rate in almost seven years last month and a services PMI published on Thursday dropped to 51.6 from August’s 53.5 — the lowest since the start of the year.
Williamson said the PMI indicated the bloc’s economy would expand 0.1 percent this quarter at best, weaker than the 0.2 percent predicted in a Reuters poll last month.
Forward-looking indicators in the survey suggest there is no upside to those forecasts as overall demand fell at the fastest rate since mid-2013, leading firms to again run down backlogs of work to keep active. The composite new business index fell to 48.7 from 50.5.
As growth stalled, services firms cut back on hiring plans. The employment index fell to 53.0 from 53.2, its lowest since January.
French business activity expanded at a slower-than-expected pace in September compared to the previous month, partly due to a deceleration in new business growth.
IHS Markit’s overall composite PMI index, which includes the services and manufacturing sectors, fell to 50.8 points in September from 52.9 in August. The final reading for the September composite PMI index was also worse than a flash estimate reading of 51.3 points.
Data earlier this week showed that French manufacturing activity had also dipped in September.
“Private sector activity growth eased at the end of the third quarter, driven by a softer rise in services and a return to contraction in manufacturing,” said IHS Markit economist Eliot Kerr.
“The results in services are particularly concerning as they suggest negative spillover effects from manufacturing are beginning to come to fruition,” added Kerr, who noted that France was nevertheless faring better than other European economies. – Reuters