Euro area’s preliminary purchasing managers’ indices drop significantly in September

The Euro area’s preliminary purchasing managers’ indices dropped considerably again in September, clearly failing to meet cautious expectations. The manufacturing index dropped to 45.6 in September from August’s 47.2. Germany is likely to have driven this fall, with the nation’s manufacturing PMI at 41.4, its lowest since mid-2009. Nevertheless, the manufacturing sector in the other euro area nations also seems to be experiencing increasing problems.

The index, excluding Germany, also came below the 50s line at 48.7, suggesting that production in the other nations is also falling. Un to and including July, production in the currency bloc excluding Germany moved sideways on balance, while in Germany  the trend has been downwards for some time now.

Furthermore, the issues within the manufacturing sector appear to increasingly spread to the services sector. The purchasing managers’ index for services also dropped sharply to 52 from 53.5. Germany recorded a sharp fall of two points to 52.5 from 54.8. The German services PMI therefore seems to be joining the long-standing downward trend of the corresponding sub-component of the Ifo business climate, noted Commerzbank in a research report.

Today’s figures affirm that there will not be any marked rebound in the euro area economy in 2019. The recession risk is rising. Particularly in Germany, a “technical recession” is very likely.

“With the deterioration of the situation in the services sector, however, the danger of a pronounced recession, i.e. a shrinking economy with a significant decline in investment and a noticeable rise in unemployment, is also increasing, especially in Germany”, added Commerzbank.