Eurozone new order growth hits two-and-a-half year high in October

Investing.com -- Eurozone business activity expanded at a faster pace in October, with new orders growing at the strongest rate in two-and-a-half years, according to flash PMI data released Friday.

The HCOB Flash Eurozone Composite PMI Output Index rose to 52.2 in October from 51.2 in September, marking the tenth consecutive month above the 50.0 no-change mark. This represents the joint-fastest growth rate in nearly two-and-a-half years, matching the level seen in May.

Both manufacturing and services sectors showed growth, with services leading the expansion. The Services PMI Business Activity Index increased to 52.6 from 51.3 in September, reaching a 14-month high. Manufacturing production rose slightly faster than in September, with the Manufacturing PMI Output Index edging up to 51.1 from 50.9.

Germany posted a solid increase in output, with growth hitting a 29-month high. The euro area excluding Germany and France recorded the fastest rise in activity for two-and-a-half years. However, France continued to struggle, registering its fourteenth consecutive monthly decline in output, with the contraction being the sharpest since February.

New orders increased at the fastest pace since April 2023, primarily driven by the services sector, while manufacturing new orders broadly stabilized after falling in September. Despite this overall improvement, new export orders continued to decrease, though at one of the slowest rates since the current contraction began in March 2022.

Employment returned to growth in October following a marginal fall in September, with the increase being the joint-fastest in 16 months. Job creation was concentrated in the services sector, while manufacturing employment decreased at the fastest pace in four months.

Backlogs of work stabilized, ending a period of depletion that stretched back to April 2023. Service providers posted the first accumulation of outstanding business for a year-and-a-half.

Input cost inflation eased for the second consecutive month, reaching a three-month low and coming in below the series average. However, output prices rose at the fastest pace in seven months, with manufacturers increasing their selling prices for the first time in six months.

Supplier delivery times lengthened solidly, with the rate of deterioration in vendor performance intensifying for the fourth consecutive month to reach the most pronounced level in three years.

Despite stronger expansions in output and new orders, business confidence waned to a five-month low and was weaker than the series average.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that "France is increasingly becoming a drag on the eurozone economy," adding that uncertainty about the current government’s stability "is causing unease and contributing significantly to the weak economic situation in France."

He also pointed out that eurozone manufacturing "has been stagnating for practically six months," with companies accelerating workforce reductions to adapt to weaker demand conditions.

Regarding inflation, de la Rubia stated that it "remains moderate" in the eurozone services sector, suggesting that the European Central Bank is likely to see this data "as confirmation of its stance not to implement further interest rate cuts."