The Eurozone Business Activity Fell To A Two-Year Low In October

• The manufacturing and services PMI in the Eurozone decelerated sharply losing 1.2 points on a composite basis to 52.7 in October.
• German private business activity decelerated to a three-and-a-half-year low in October.
• The squeeze is felt in new orders falling into contraction territory in Germany as outlook is blurred by Trump’s unilateral trade policy.
• Sharp deceleration of business activity hardens the ECB’s policy stance of scaling back the asset purchasing program. 

The Eurozone manufacturing PMI decelerated to 52.1 while services PMI fell to 53.3 in October. The composite PMI combining the business activity in both sectors fell to 52.7, the lowest level in 25 months.

The unexpectedly sharp deceleration in the private business activity reflected the slowdown in Germany, the Eurozone’s largest economy. German private business activity decelerated to a three-and-a-half-year low in October with manufacturing PMI down 1.3 points to 52.3 and services PMI fell 2.3 points to 53.6 in October.

Manufacturing PMI in France also fell more than expected to a reading of 51.2 for October.

The Eurozone business surveys indicate that the fourth quarter GDP is set to rise by 0.3 percent Q/Q only with sub-indices in new orders indicating further slowdown ahead.

“The forward-looking indicators, such as measures of future expectations and new business inflows, suggest further momentum could be lost in coming months,” Chris Williamson, the IHS/Markit chief business economist and the author of the report noted.

Flash PMI survey for October came out just one day ahead of the ECB Governing Council meeting with Mario Draghi, the ECB President, likely to face questions about the policy path. Historically, a sharp deceleration in the economic activity would result in loosening of the monetary policy while ECB is on a tightening path with zero bound policy rate and the unconventional program of asset purchasing still in place until this December.