- Prior 51.3
- Manufacturing PMI 50.0 vs 49.8 expected
- Prior 49.8
- Composite PMI 52.2 vs 51.0 expected
- Prior 51.2
The beat here comes as the German economy outperforms to start Q4, with the services sector in particular running hot. That just helps to reaffirm the ECB decision to pause on policy as employment conditions continue to hold up. Meanwhile, inflation pressures are still seen moderating but not quite at a pace that should get the ECB off their seats. HCOB notes that:
“France is increasingly becoming a drag on the eurozone economy. While the economic situation in Germany brightened significantly in October, the rate of contraction has accelerated for two months in a row in France. As a result, economic growth in the eurozone, even though accelerating a bit, has been much weaker than it otherwise could have been. Uncertainty about whether the current government under Sebastien Lecornu can remain in power for much longer in view of the disputes over the 2026 budget is causing unease and contributing significantly to the weak economic situation in France. As an important buyer of products and services from other eurozone countries, France’s weakness contributes to the fragility of the recovery in the rest of the eurozone.
Industry in the eurozone has been stagnating for practically six months. The marginal improvement in the headline PMI to 50 offers little hope of a turnaround. This is all the more true given that new orders have been similarly weak. In this environment, manufacturing companies have accelerated their workforce reductions in an effort to adapt to weaker demand conditions and become more efficient at the same time. Although companies have been able to pass through slightly higher prices to their customers, input prices have also risen somewhat, meaning that profit margins are unlikely to have increased significantly.
Inflation in the eurozone services sector remains moderate. The rate of inflation for sales prices has risen slightly, but remains close to the long-term average. Cost increases were slightly lower in October, so there is little danger from this side in the short term. The European Central Bank, which pays particular attention to inflation in the service sector, is likely to see this data as confirmation of its stance not to implement further interest rate cuts.”
