Eurozone: October PMI strongest this year - ING

Bert Colijn, Senior Economist at ING, suggests that a jump in orders, hiring and prices shows optimism about Eurozone’s growth in the first month of Q4.

Key Quotes

“Recent months have shown sluggish economic conditions in the Eurozone with domestic demand weakened and exports under pressure from global uncertainties. The composite PMI for October jumped from 52.6 to 53.7 - the highest reading this year – suggesting a stronger start to the fourth quarter than initially expected.

Growth was boosted by stronger new orders and backlogs of work in both manufacturing and services, with Germany leading the way for both. France on the other hand showed a declining composite PMI as service sector growth fell to a 3-month low. This difference in performance between the two largest Eurozone economies shows that the current uptick did not happen across the board.

Very important to note is that price pressures seem to be intensifying. While the PMI has recently been indicating higher input prices, this did not lead to significant increases in selling prices as businesses were competing for volumes. This month, selling prices increased at their fastest pace in 5 years, indicating that it has become necessary to pass the higher input prices onto consumers. As businesses indicated that even wage pressures increased, this will no doubt comfort the ECB that core inflation could be on the rise in coming months.

The question is whether this means that the wait-and-see attitude of businesses has passed. Many of the uncertainties plaguing the Eurozone economy may have faded somewhat, but concerns about geopolitical risks, instability in the financial sector and monetary policy are far from likely to fade into the background permanently. A strong October therefore does not yet mean a strong Q4, but at least it’s a good start.”