Sentiment among purchasing managers in the euro zone has cooled down noticeably in October. The broad composite index has fallen by 1.4 points to 52.7 points, the lowest level in 25 months!
According to the survey, production in industry has hardly increased at all. The increase rate was the lowest since November 2014. The ongoing weakness in industry is now also affecting the services sector which has reported the lowest business growth in two years. According to IHS Markit, growth in incoming orders has also weakened noticeably, and has even declined in industry. The deterioration in business expectations therefore comes as no surprise.
German and French purchasing managers from industry unanimously reported weaker demand from the automotive sector. We believe that this may also be connected with the new WLTP (Worldwide Light Vehicle Test Procedure) which came into force in September and has led to significant delays in the delivery of new passenger cars. Hopes remain that the disruption in production will be remedied after a transitional phase.
The German purchasing managers were far more pessimistic in October. In the services sector, the purchasing managers‘ index fell to its lowest level in 5 months, while in industry the sentiment barometer even fell to a 29-month low. The two factors combined caused the composite index to decline by 2.3 points to its lowest level in 41 months. The planned job increases remained robust. The order increase among the surveyed service providers was only weak, while industrial companies even incurred a decline in demand according to IHS Markit. The geopolitical uncertainties surrounding the trade disputes and Brexit have also sent the business prospects into decline. At the beginning of the final quarter of 2018, the results of the survey will have a dampening effect on Germany’s growth prospects for a while.
In France, on the other hand, the deterioration in sentiment in October has not continued on the whole. Here it was the services sector index that nudged the composite index up slightly from 54.0 to 54.3 index points. The surveyed service providers reported an increase in both business activity and new orders. In industry, on the other hand, estimates deteriorated further due mainly to a decline in production – for the first time since July 2016 – and weaker growth in incoming orders. Overall, therefore, the French private sector, with its inconsistent readings from industry and the services sector, remains on a moderate growth course at the beginning of the fourth quarter.