Eurozone October manufacturing remains mired in contraction

The eurozone's industrial sector showed few signs of a rebound in October, with output remaining in contraction and few signs of increased momentum from September, according to data from IHS Markit on Monday.

Eurozone manufacturing purchasing managers’ index (PMI) levels ticked up to 45.9 during the month compared to 45.7 in September, remaining at a seven-year low and driving job losses up to the highest level since 2013.

Output remained in negative territory across most key eurozone economies, with even stronger performers like France, Greece and the Netherlands barely breaking the 50.0 PMI level indicating growth.

Italy, Spain and Austria remained firmly in contraction territory and Germany, which has seen an industrial collapse through 2019 that has rocked the pace of European economic growth, saw manufacturing hovering in a trench of 42.1 compared to 41.7 in September.

“It remains to be seen if the downturn in the German manufacturing has finally reached a nadir – much of course depends on developments in global trade, with the US set to decide next week whether to impose new tariffs on automotive imports from the EU,” said Markit principal economist Paul Smith.

Sharp declines in order book volumes weighed on operating conditions during the month, concentrated on intermediate goods producers, while consumer goods makers saw significantly milder levels of deterioration.

Shrinking work pipelines led to further falls in output and purchasing activity, and players continued to work down inventory levels. Thierry Le Henaff, CEO of France-based producer Arkema, noted last week that hopes for an end to the customer destocking trend in the second half of the year have dwindled.

Plastics are among the commodities that have been hardest-hit by the deflationary environment, leading to ongoing price pressure.

The prevailing bearishness comes despite intensified efforts by the European Central Bank (ECB) to stabilise the eurozone economy, underlining the extent of the challenge the bloc is facing at present, according to Markit chief economist Chris Williamson.

“The severity of the downturn, alongside poor trends in employment and prices is especially disappointing given the ECB’s recent stimulus measures, underscoring how new ECB head Christine Lagarde is taking over the reins at a particularly difficult juncture for the eurozone economy,” he said.

“The final French and German manufacturing PMIs were slightly better than the flash numbers while the Italian and Spanish manufacturing PMI declined further in October to 47.7 and 46.8 respectively,” said Oxford Economics economist Maddalena Martini. “This highlights that the industrial weakness spread from Germany to the rest of Europe.