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MACRO PATRIS - Markit composite PMI drops below 50 in Italy, suggesting that the economy contracted in October

6 Nov 2018


Eurozone: October Final Markit Services/Composite PMIs

Bottom-line: The Markit Eurozone composite PMI was revised higher by 0.4 points in October from the flash reading to 53.1, reflecting the revision to the German composite PMI. This leaves the PMI for the euro area 1 point below the September reading and 1.2 points below the 3Q18 average. This is also the lowest level for more than two years, suggesting a weak pace of output growth for the region at the beginning of 4Q18 (although slightly above the 0.2%q/q pace of expansion reported as a flash estimate by the Eurostat for 3Q18).

Both manufacturing and services sectors PMIs eased on the month. By countries, Ireland showed the strongest level, despite the fact that the index fell to a seven-month low. Activity in Germany eased to a 5-month low and the joint lowest in over two years. The reading for Italy came out in contractionary territory.

In the services sector, the PMI reached the lowest level since the start of 2017. The incoming new work component remained solid, although at the lowest since May. The employment component eased only slightly from September’s near 11-year high.


Spain: Markit composite PMI rose by 1.2 points to 53.7 in October (the strongest since June), on the back of 1.5 points increase in the PMI for services sector. Consensus expected a slight decline on the month to 52.2. The October reading compares to a 3Q18 average of 52.7, suggesting some improvement in output growth at the beginning of 4Q18.

The press release disclosed by Markit showed stronger growth of incoming new business. The employment component reached the lowest level for two years. Business confidence for the year-ahead was little changed. Firms reported increases in the price of fuel and energy, plus higher labour costs, while output charges rose only slightly. Margins remained under pressure.

Italy: The Markit/ADACI Italy Services PMI recorded a large fall in October (-4.1 points to 49.2, vs. consensus 52.0). This is the first reading in contractionary territory since May 2016 and the lowest level since September 2014. The Markit/Composite PMI declined by 3.1 points to 49.3 (vs. consensus 51.0). This is the first reading below 50 since December 2014 and the lowest since November 2013.

The details of the survey showed that selling prices declined for the ninth consecutive month (although remaining marginal), while operating costs increased, which squeezed services companies’ profit margins. The input prices component eased after September’s 40-month high. New business at Italian service providers grew only marginally in October. This was the lowest reading for this component for over three-and-a-half years, with a number of companies reporting subdued client demand according to the press release disclosed by Markit. The employment component eased on the month and reached a 14-month low. Business confidence remained solid in October, with over a third of businesses expecting activity to be higher in a year’s time.

Other countries: The final reading for the Markit composite index in France was revised lower from the flash reading (-0.2 points to 54.1), which leaves the index broadly stabled compared to September (54.0) and slightly below the 3Q18 average (54.4). In Germany, the Markit/BME composite PMI was revised upwardly by 0.7 points to 53.4, which reduces the monthly decline to 1.6 points. The October reading compares to a 3Q18 average of 55.2. The composite PMI for Ireland fell by 2.3 points to 56.1, the lowest reading since March and 1.8 points below the 3Q18 average.


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