Brussels - Business activity in the eurozone contracted for the second time in three months in November, as weak demand saw companies facing challenges securing orders, a closely watched survey showed. The HCOB Flash Eurozone purchasing managers’ index (PMI) published by S&P Global dropped to 48.1 compared to 50.0 in October, the most marked rate of contraction in ten months. Any reading above 50 indicates growth, while a figure below 50 shows contraction. “Things could hardly have turned out much worse,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “The eurozone’s manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth.” The survey showed that Germany and France, the 20-country single currency area’s two biggest economies, were once again driving the weakness, with the latter posting the fastest fall in activity since January.
Business activity in the eurozone’s service sector also decreased for the first time in ten months -- but the reduction was “only slight” and much weaker than that seen in manufacturing, according to the survey.
The data might tame expectations of another interest rate cut in December after the European Central Bank (ECB) already stepped up the pace of reductions this year.
“We thought that lower inflation and higher wages would boost consumption and demand for services, but that hope has been dashed,” said de la Rubia.
“Some ECB members might even argue for a rate pause in December, but most will probably stick with a 25-basis point rate cut”.
The Frankfurt-based ECB has lowered borrowing costs three times since June.
Meanwhile, eurozone output came in stronger than expected at 0.4 percent in July-September.
“The November PMI is another wake-up call for eurozone policymakers that the economy continues to show signs of weakness,” said Bert Colijn of ING Bank.
“But after the third-quarter GDP figures showed an acceleration, the question is how seriously this signal will be taken”.