Eurozone growth wanes as downturns in France and Italy continue

The ongoing malaise in the eurozone economy continued at the end of the third quarter, with the latest PMI data showing a further waning of output and new order growth.

The final Markit Eurozone PMI" Composite Output Index fell to a ten-month low of 52.0 in September, down from 52.5 in August and below the earlier flash estimate of 52.3. The average reading for the third quarter as a whole (52.8) was also the lowest so far in 2014.

The survey data therefore suggest the eurozone economy remained stuck in a rut in the third quarter. After GDP stagnated in the second quarter, we can only expect modest growth of 0.2-0.3% in the third quarter based on these survey readings, with momentum being lost as we head into the final quarter of the year.

There are certainly pockets of growth: Ireland's economy is recovering strongly, Spain is seeing a still-robust upturn and the German service sector is providing an important prop to growth in the region as a whole. But the overall picture is one of a euro area economy that is struggling against multiple headwinds. These include a lack of domestic demand in many countries, subdued bank lending, sanctions with Russia and a reluctance of companies to expand in the face of an uncertain economic outlook.

The survey showed growth of new orders sliding to the weakest for almost a year across the region as a whole, suggesting demand for goods and services is barely growing. Employment was held more or less unchanged again as a result, and a weakening in firms' backlogs of orders suggests we could see headcounts start to fall again in coming months if this lack of demand persists.

The waning of growth signalled by the PMI will apply further pressure on the ECB to broaden the scope of its planned asset purchases, to not only buy riskier asset-backed securities but to also start purchasing government debt.

View the full press release here.

Please also see our review of the PMI and GDP divergence in the second quarter.

France

Germany

Italy

Spain

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