The PMI figures for the Eurozone highlight a decline in both manufacturing and services.

In the Eurozone, the PMI for manufacturing held steady at 43.4, whereas the services sector's index displayed some strength, increasing from 47.9 to 48.4.

Highlights

1. Eurozone's Manufacturing PMI stays at 43.4, indicating a contraction in the sector.

2. The Services PMI demonstrates a marginal improvement, reaching 48.4, although it remains below the threshold.

3. There is a difference in inflationary pressures between the manufacturing and services sectors.

Eurozone's Economy Faces Contraction Amid Dwindling Demand

The Eurozone has experienced a significant decrease in the private sector, evidenced by the most substantial drop in new orders in nearly three years. As businesses contend with diminishing demand, key indicators from the HCOB Flash Eurozone PMI illustrate the extent of this economic downturn.

Sectoral Divergence

Manufacturing continues as the primary driver of the Eurozone's output decline. The HCOB Flash Eurozone Manufacturing PMI Output Index remained steady at 43.4. On the other hand, the service sector showed a slight improvement, with its PMI Business Activity Index rising to 48.4 from 47.9 in August. Importantly, both sectors remain below the 50-mark threshold, indicating contraction.

Inflationary Pressure and Pricing

The inflation situation in the Eurozone in September depicted differing patterns. Input costs surged at their fastest pace in four months, particularly affecting services due to increased wages and fuel expenses. In contrast, manufacturing sustained a seventh consecutive monthly decline in input costs. Despite escalating input costs, subdued demand led to companies raising their selling prices to a lesser extent than the previous month.

National Disparities and Impact

Germany and France, the Eurozone's two major economies, have been at the forefront of the economic decline. Germany's output decreased for a third consecutive month, while the contraction in France was even more pronounced, marking its most significant drop in over a decade. Conversely, the rest of the Eurozone experienced a relatively stable business environment in September, with a mild upturn in services.

Short-Term Outlook: Pessimistic

Given the contractions in both manufacturing and services sectors, the Eurozone's outlook remains pessimistic. Manufacturing, in particular, is in a precarious state, and although services are displaying some resilience, it is insufficient to offset the decline. With companies exercising caution in hiring, the forecast indicates that the Eurozone is likely to enter a contraction in the third quarter. Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, further emphasized the risk of a wage-price spiral, highlighting the challenges ahead for the Eurozone economy.