The downward revision to September’s euro-zone PMI leaves it consistent with zero growth at the end of Q3, as the contraction in Germany’s economy appears to have accelerated and spread to the services sector. Meanwhile, the pick-up in euro-zone retail sales in August was not enough to reverse July’s fall.
Germany behind euro-zone Q3 slowdown
- The downward revision to September’s euro-zone PMI leaves it consistent with zero growth at the end of Q3, as the contraction in Germany’s economy appears to have accelerated and spread to the services sector. Meanwhile, the pick-up in euro-zone retail sales in August was not enough to reverse July’s fall.
- The final Composite PMI for the euro-zone in September, released this morning, was revised down to 50.1 (flash: 50.4) leaving it well below August’s reading of 51.9. The average reading for the euro-zone index in Q3, at 51.2, is consistent with the economy having eked out growth of only around 0.1% q/q.
- The really bad news in today’s data release is the further slump in the Composite PMI for Germany which indicates that the economy almost certainly entered recession in Q3. The index was revised down from its flash estimate of 49.1 to a near 7-year low of 48.5, suggesting that the contraction may have accelerated towards the end of the quarter (see Chart 1) as the manufacturing recession spread to the services sector.
- Meanwhile, although Italy’s Composite PMI edged up it suggests that, after flat-lining in Q2, the Italian economy is unlikely to have done better in Q3. (See Chart 2.)
- Spain remains a relative bright spot among the major euro-zone economies, but even it seems to be losing momentum. The average reading of Spain’s Composite PMI in Q3 was only a touch below Q2’s 52.4 when the economy expanded by 0.4% q/q, but the index declined to a six-year low in September. Growth in Q3 seems to have been entirely driven by the services sector: although both the services and manufacturing indices fell, the former remains in expansionary territory while the latter was below the 50-mark.
- Finally, euro-zone retail sales data, also published this morning, showed that after falling by 0.5% m/m in July, sales rose by 0.3% in August, or 2.1% y/y. Sales rose in all of the major product groups (see Table 1) and the country breakdown confirmed that sales increased in Germany, France and Spain. (Italy data are not yet available.) If retail sales were unchanged in September, sales over Q3 as a whole would have grown by just 0.1% q/q, slower than Q2’s 0.5% when overall euro-zone consumption growth was just 0.2%.
Chart 1: Germany Composite PMI & GDP
Chart 2: Italy Composite PMI & GDP
Sources: Refinitiv, Markit
Sources: Refinitiv, Markit
Table 1: Retail Sales
Retail Sales (incl fuel)
Food, drink & tobacco
Non-food products ex. Fuel
Source: Refinitiv *y/y rates are working-day adjusted.
Melanie Debono, Europe Economist, +44 20 3750 0991, email@example.com