The euro area economic upturn regained some momentum at the start of the fourth quarter. The Markit Eurozone PMI® rose from September’s four-month low of 53.6 to reach 54.0 in October, according to the flash estimate. The latest reading remained slightly below that seen in August but still signalled one of the strongest monthly expansions seen over the past four years.
Output rose across both services and manufacturing, pointing to a broad-based upturn. The former sector once again recorded the stronger gain, with the divergence widening as services growth accelerated slightly but factory production showed the smallest rise for five months.
Growth of new business also edged higher, reaching a six-month peak. Faster growth of inflows of new business in the service sector, which recorded the largest rise for six months, offset a weakening of new order growth in manufacturing.
Signs of stronger demand and a further build-up of work-in-hand encouraged firms to take on extra staff, driving overall employment growth slightly higher after the slowdown seen in September. However, while job creation hit a five-month peak in services, it waned to an eight-month low in manufacturing, often linked to firms seeking productivity gains in order to boost competitiveness.
Inflationary pressures remained weak during the month. Average selling prices for goods and services fell for the first time in three months, albeit only marginally, led by a drop in the manufacturing sector amid continuing efforts to cut prices and boost sales. Prices charged for services were unchanged, though this still represented a contrast to the output price falls seen over the four years prior to September.
Input prices meanwhile rose only modestly, as increased cost pressures in services, often linked to rising wages, were countered by the steepest fall in manufacturing input costs for nine months, linked in turn mainly to reduced global commodity prices.
Looking ahead, the forward-looking indicators point to a risk of growth slowing in November. Service sector expectations of activity in the year ahead hit a ten-month low, while the manufacturing orders-to-inventory ratio dipped to its weakest for nine months.
The region’s two largest economies – Germany and France – both saw growth accelerate in October, with the former enjoying the stronger pace of expansion. However, although still only modest, growth of business activity in France – a laggard in the region’s current recovery – was the second-fastest seen for just over four years. Growth also picked up slightly in the rest of the region, but remained below the pace seen earlier in the year.
