Eurozone PMI Slows to 51.9 as France Slips Into Contraction

Key Facts

Private-sector activity growth in the eurozone slowed in October, with the preliminary composite index from S&P Global falling to 51.9 points from 53.1 in September, its lowest reading since June. The figure was below the Reuters poll forecast of 52.7 points and lower than all estimates in the poll. Still, the index remained above the 50-point threshold that separates growth from contraction, indicating continued expansion, albeit at a weaker pace. The index components showed services falling to 51.7 points from 53.0, and manufacturing to 52.4 from 52.9. The slowdown therefore spanned both sectors, though both remained in growth territory.

The decline was sharper in France, where the preliminary composite index fell to 48.4 points in October from 51.1 the previous month, below the Reuters poll forecast of 50.5. A reading below 50 signals contracting activity, after the index returned to growth in September. France's services index fell to 48.4 points from 51.2, while manufacturing declined to 49.3 from 50.6. Both sectors thus slipped into contraction, reflecting broader weakness in the French economy. The services reading showed a sharper contraction than the manufacturing decline, while the composite index fell below both expectations and its previous level.

Companies participating in the survey said demand for French goods and services recorded its sharpest decline since May, citing heightened political uncertainty and economic pressures. A Reuters report quoted an S&P Global expert as saying September's rebound "did not last long," linking the reversal to the rapid tightening of financial conditions and increased political pressure in France during October. The business confidence index for the outlook over the next 12 months also fell to its lowest level in six and a half years. The expert linked that level to companies' concerns about the French presidential election scheduled for 2027 and the country's fiscal position. In a separate official indicator outside the purchasing managers' survey, French business climate in October stood at 98 points across all sectors, 99 for services and 105 for manufacturing.

In the eurozone, the slowdown in activity coincided with input costs accelerating for a second consecutive month. A Reuters report attributed the increase to higher energy, fuel and transport costs, partly due to the Middle East war. Companies raised selling prices at a slower pace than in September, putting pressure on their margins as operating costs continued to climb. The ZEW eurozone expectations index fell to 18.5 points in October, down 7.3 points from the previous month. Together, these indicators point to slower activity growth, higher costs for companies and weakening economic expectations.

The pressures were reflected in currency trading on Friday, October 23, when the European Central Bank's reference exchange rate stood at $1.1193 per euro, below $1.1200. Reuters reported that the euro was heading for a weekly loss against the dollar and yen, as French government bond selling weighed on the currency. The risk premium on French debt rose to its highest level since the eurozone sovereign debt crisis in 2011, according to the report. French fiscal and political concerns coincided with weaker-than-expected activity data. The report noted that the pair traded below $1.1200 after the index data were released, while another source said the drop below that level occurred before their release.

Attention now turns to the European Central Bank's next meeting. A Reuters poll expected the deposit facility rate to remain at 2.50%, followed by a 25-basis-point increase in December; these are poll expectations, not an ECB decision. The bank's table shows the deposit facility rate at 2.50%, while the main refinancing operations rate is 2.65%, both effective since September 16. The Reuters report cited inflation remaining at around twice the bank's 2% target as the basis for its interest-rate outlook. Those expectations come as regional growth slows and input costs accelerate, putting activity and prices at the heart of the outlook for the bank's decision. Eurostat's calendar also lists the preliminary estimate of third-quarter gross domestic product and September unemployment data for October 30, making them the next releases investors are watching.