PMI data out from major economies on Thursday underscored the apparent intractability of the global manufacturing slump and showed the eurozone economy at a virtual standstill as Mario Draghi presides over the final ECB meeting of his tenure.
A slight (and we do mean slight) rebound in the numbers out of Germany still left the world’s fourth-largest economy staring down the worst manufacturing slump since the crisis. The flash read on the BME and IHS Markit manufacturing gauge for the country is 41.9 for October, below estimates. It was the tenth consecutive month of contraction.
Manufacturing new orders have contracted for 13 months in a row. Markit highlights a worrying trend in employment. “October saw employment across the German private sector fall, albeit only slightly, for the first time in six years”, the report reads. “Job losses were largely centered on manufacturing, where staffing numbers fell to the greatest extent for nearly ten years amid the widespread paring of temporary and contract workers”.
But it’s not just in manufacturing. Services sector job creation slowed to a three-and-a-half year low as well.
“Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the eurozone’s largest economy contracting further and underlying demand continuing to soften”, Phil Smith, Principal Economist at IHS Markit said.
This comes as the fiscal stimulus debate continues to unfold in Berlin. Earlier this month, the German Economy Ministry slashed its growth outlook for 2020 to just 1% from 1.5% previously, the latest sign that Angela Merkel’s government needs to come to terms with the stark economic reality confronting the economy before it’s too late. In short, “black zero gotta go“.
On the whole, the euro-area remains mired in something that’s not quite a recession, but ain’t really “growth” in any real sense, either. The flash read on the IHS Markit composite PMI for the bloc in October is 50.2. New orders remained in contraction for a second straight month. The manufacturing gauge printed 45.7, below estimates.
“The eurozone economy started the fourth quarter mired close to stagnation, with the flash PMI pointing to a quarterly GDP growth rate of just under 0.1%”, Chris Williamson, Chief Business Economist at IHS Markit said, adding that “the manufacturing downturn remains the fiercest since 2012, and continues to infect the service sector, where October saw the smallest increase in new work for almost five years”.
Meanwhile, in Japan, the Jibun Bank Manufacturing Purchasing Managers Index fell to 48.5 in October. That, sports fans, is the lowest in more than three years. New orders plunged at the fastest pace in almost seven years.
The services PMI suffered a ghastly fall from September to just 50.3, on the brink of contraction.
On the bright side, some of the weakness in Japan was expected. “Japan’s economy hit a widely-expected bump in October following the consumption tax increase which took effect during the month”, Markit’s Joe Hayes remarked. “The latest data suggests the service sector is going to have a lot of slack to account for”.