Euro Zone Business Activity Stabilizes in October

Euro zone business activity showed signs of stabilization in October, marking a slight improvement from the modest decline observed in September. The HCOB composite Purchasing Managers’ Index (PMI), compiled by S&P Global and considered a reliable indicator of overall economic health, rose to 50.0 in October from 49.6 in September1. This figure is right on the threshold separating growth from contraction and exceeded the preliminary estimate of 49.7.

The stabilization was primarily driven by an expansion in the services sector, which offset the ongoing but stabilizing decline in manufacturing. The services PMI nudged up to 51.6 last month from 51.4 in September, surpassing the flash reading of 51.21. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, noted that “growth” and “stability” are not typically associated with the current economic situation in the euro area, but the services sector has been providing stable growth since early this year.

Despite the positive signs, demand for services waned last month, with the new business index for the bloc falling to 49.2 from 49.7. However, de la Rubia expressed confidence that service providers will continue to increase their activity, as lower inflation and higher wages are expected to boost private consumption and support demand for services1.

The composite future output index, which measures business confidence about the year ahead, dipped slightly to 58.1 from 58.6 but remained comfortably ahead of the preliminary reading of 57.3. The economy is projected to expand by 0.2% this quarter, according to a recent Reuters poll1.

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