Europe just waved another red flag as new data suggests its economy is at risk of stagnating

Draghi may have stabilised the euro but is leaving his role with the economy stagnating. REUTERS/Yves Herman
  • European leaders have a fresh headache as data released on Thursday suggests the eurozone economy may only grow 0.1% this month.
  • The IHS Markit flash PMI reading inched up from 50.1 in September to just 50.2, indicating the economy is close to stagnating.
  • Germany continued to disappoint as employment fell for the first time in six years.
  • Mario Draghi, the outgoing European Central Bank president, will be giving his last speech on Thursday. He’s expected to push governments for fiscal stimulus.
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The eurozone is waving another red flag. Data released on Thursday suggests it may grow just 0.1% in October, indicating its economy is close to stagnating.

The IHS Markit flash PMI reading showed market sentiment on the economy inched up from 50.1 in September to 50.2 this month.

PMI indicates how the economy is doing by surveying how purchasing managers feel about the future. The flash reading gives a portion of the main reading, taking in about 85% of usual monthly replies. A reading above 50 suggests economic growth, while one below 50 suggests decline.

IHS Markit said the slower growth reflected “a further steep decline in manufacturing output,” which “was accompanied by one of the weakest service sector expansions since 2014.”

Matters were made worse as Germany posted extremely poor figures, with employment dropping for the first time in six years. The nation’s manufacturing also remained in the red, with its flash manufacturing PMI coming in well below the 50 threshold at 41.9, indicating a significant decline yet again.

“The eurozone economy started the fourth quarter mired close to stagnation, with the flash PMI pointing to a quarterly GDP growth rate of just under 0.1%,” said Chris Williamson, chief business economist at IHS Markit.

“The labour market is meanwhile being hit as firms retrench amid signs of excess capacity and uncertainty about the year ahead intensifies,” Williamson said. “Optimism about future prospects deteriorated further in October to the lowest for over six years, commonly linked to global trade tensions, Brexit related worries and increasingly gloomy economic forecasts.”

The bad news comes as Mario Draghi prepares to end his tenure as president of the European Central Bank. He is widely credited with stabilizing the euro but will leave his post with the eurozone economy under threat and faltering.

He is due to speak later on Thursday after a monetary policy meeting in Frankfurt. He’s expected to push governments to act by implementing a fiscal stimulus.

“The survey indicates that Mario Draghi’s tenure at the helm of the ECB ends on a note of near-stalled GDP, slower jobs growth, near-stagnant prices and growing pessimism about the outlook, piling pressure on Christine Lagarde to drive new solutions to the eurozone’s renewed malaise,” Williamson added.

Eurozone flash pmi