Eurozone October final services PMI 51.6 vs 51.2 prelim

• Prior 51.4
• Composite PMI 50.0 vs 49.7 prelim
• Prior 49.6

The euro area economy kicks start Q4 in stagnation mode with heavyweights Germany and France dragging down the overall performance. A further weakening in demand conditions is to blame but just be wary that employment conditions are also seen worsening. The latter is seeing its weakest showing since December 2020 and that will be one spot the ECB has to now watch more closely. HCOB notes that:

“Growth and stability are not the first words you would associate with the current economic situation in the euro area. But
that is exactly what the services sector has been providing, with stable growth since early this year. The modest expansion
of the services sector has been crucial in keeping the currency union out of recession. We are confident that service
providers will continue to increase their activity, as lower inflation and higher wages mean higher private consumption, which
supports demand for services. Therefore, we would also expect new business to recover, which has declined somewhat in
the last two months.

“It is not clear if stagnation of the Eurozone economy will be prevented given the Composite PMI recorded 50.0 in October.
Our GDP nowcast for the fourth quarter, based on the PMIs and several other indicators, signals a slight contraction,
although GDP growth is still possible if the manufacturing sector improves over the next two months, for which the October
figures provide some, albeit very tentative, hope.

“Christine Lagarde, President of the European Central Bank, noted at the last ECB press conference that services inflation
remains rather sticky. The PMI price indicators support this view. Costs rose at a faster pace in October than in previous
months, as did selling prices. In our view, this stickiness is a structural problem related to the demographically induced
labour shortage, which is exerting upward pressure on wages. The ECB will find it difficult, if not impossible, to achieve the
2% inflation target in a sustainable manner in this environment.”

This article was written by Justin Low at www.forexlive.com.