• Prior 43.4

The manufacturing recession in the euro area deepens as now employment conditions are starting to be noticeably hit as well. Given such a poor start to Q4, it is over to services once again to see if it can drag the Eurozone out of the mud and prevent deeper risks of a recession in the region. HCOB notes that:

“The Eurozone manufacturing sector’s trend over the last two years or so looks like a bumpy sleigh ride down into the valley. Given that the headline PMI did barely move over the last few months, including October, we may be about to reach the bottom of the valley. Thus, the big question is when we will begin to make an ascent. The stagnating new orders index, which remains deep in negative territory, and the similar behaviour of the Quantity of Purchase Index does not suggest an immediate turnaround. Having said this, history tells us that in many cases the levelling out of these indices is the precondition for a start of the recovery. We expect this to happen in the first half of next year.

“Companies continue to decrease their stock of purchases. Thus, we do not see any desire from firms to refill their empty shelves, which we’d expect during a demand recovery. In light of the new geopolitical tensions in the middle east, and subsequent rise in downside risks, this is perhaps not fully surprising.

“Notably, companies cut staff much more aggressively in October than in the previous month. However, when we compare the headline PMI with the employment PMI, we see that the latter is actually in better shape than the former. This is kind of atypical because usually, both indices tend to move in sync, as we can see from the data between 2011 and 2019. There is a reason behind this seemingly odd behaviour which is the shortage of labour. That means many companies could not find people to fill their open positions. Hesitancy to lay off workers has meant that the jobs market is not taking as big of a hit as it did in past tough times.

“It looks like the eurozone countries are pulling each other down. With France, Italy, and Spain PMIs diving and Germany already signalling a deep manufacturing recession, it is pretty clear that the sector is headed for a contraction in all these countries this quarter.”