Euro Zone Growth Slows to 4-Month Low as Costs Climb

Euro zone private-sector growth cooled to a four-month low in October as rising energy and transport costs squeezed businesses and France’s economy slipped back into contraction, S&P Global reported on Friday. Its flash Composite PMI Output Index fell to 51.9 from 53.1 in September, still above the 50 mark separating growth from contraction.

The reading undershot the 52.7 that markets had expected, FXStreet said, while IndexBox, citing Reuters, noted it fell short of every forecast in a Reuters poll and was the lowest since June.

Services and factories both slow

According to the S&P Global flash release, the services business activity index eased to a two-month low of 51.7 from 53.0, and the manufacturing output index dropped to 52.4 from 53.6. The headline manufacturing PMI slipped to 52.4 from 52.9, a three-month low.

Output and new orders grew for a fourth straight month, but new business rose at the weakest pace of that run. New export orders increased for a third month in a row after years of monthly declines. Employment was broadly flat, with services hiring slowing to a five-month low and factory headcount edging down.

France was the main drag. S&P Global said French output returned to contraction after September’s first rise in 10 months, while Germany and the rest of the bloc kept growing at a slower rate. Overall business confidence dropped to a five-month low, with French firms pessimistic amid political instability.

Cost pressures build in Euro Zone

Manufacturers saw input prices rise at the steepest rate since May, with survey respondents pointing to higher energy, fuel and transport costs. S&P Global linked a jump in factory input buying, the joint-fastest in almost four and a half years, to safety stockbuilding after the outbreak of war in the Middle East. Selling-price inflation slowed, which IndexBox said points to some margin compression.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the survey was consistent with quarterly GDP growth of 0.3%, and that “higher interest rates are also starting to take a toll, dampening demand.” He added that sustained growth alongside stubborn inflation was likely to fuel speculation of more aggressive tightening by the European Central Bank.

FXStreet reported that EUR/USD traded slightly below 1.1200 after the data.

What’s next

A Reuters poll cited by IndexBox showed economists expect the ECB to keep its deposit rate at 2.50% at next week’s meeting before lifting it by 25 basis points in December. S&P Global said final October manufacturing PMI data are due on November 2, with services and composite figures following on November 4.

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