The gradual improvement in household confidence indices in the Eurozone (financial situation and purchase intentions), supported by falling inflation, is still not leading to a rebound in consumption. Retail sales have been stable for a year, even though a slight rise of 0.2% m/m was recorded in August. Motor vehicle sales, which often display a significant change from one month to the next, rose by 8.2% m/m in September, but were down to their lowest level in three years on a three-month moving average basis.
October’s PMIs outline the dynamics of sluggish growth in Q4, hampered by difficulties in the industrial sector and a loss of dynamism in the labour market. The composite PMI is still in contraction territory, even though it is up slightly (+0.1 points, to 49.7), with the manufacturing index up (+0.9 points, to 45.9) and services down (-0.2 points, to 51.2).
The employment PMI fell to 49.1, its lowest level since January 2021. It should be noted, however, that this survey has so far tended to overestimate the deterioration in the Eurozone labour market, as the unemployment rate in particular has remained at its lowest level ever this summer, standing at 6.4% in August. Furthermore, the vacancy rate in the Eurozone, despite being down in Q2[1], is still well above the levels seen in the years prior to the health crisis.
Although a rebound in inflation is expected in Q4, due to unfavourable base effects on energy, it is likely to be moderate and temporary, and a return to below 2% should be seen in early 2025. Nevertheless, inflationary tensions remain high in the services sector, where price rises have hovered around 4% year-on-year since the start of the year (3.9% y/y in September).
We expect Eurozone activity to grow by 0.2% q/q in Q3, which is in line with the results of our nowcast. Q4 should see growth strengthen to 0.3% q/q, boosted by continued monetary easing, which would take the rise for 2024 as a whole to 0.8%.
Article completed on 25 October 2024
