Eurozone Growth at Low Speed

The eurozone economy is losing steam as political uncertainty looms large over the 19-nation region.

A Purchasing Managers’ Index for the manufacturing and services sector slid to 52.6 in September from 52.9 in August, London-based IHS Markit said on Wednesday, confirming a September 23 estimate. That’s the lowest level since January 2015. A reading above 50 signals expansion, Fin24 reported.

Policy makers are struggling to shore up growth and inflation in a region increasingly beset with populist political movements.

“The slowing rate of growth across the region in part reflects growing caution among businesses,” said Chris Williamson, chief economist at IHS Markit. “We see this trend persisting into next year, as the impact of Brexit is exacerbated by uncertainty surrounding elections in France and Germany alongside ongoing political unrest in Italy and Spain.”

A PMI for services fell to 52.2 in September from 52.8, according to the report. A measure for manufacturing rose to 52.6 from 51.7, IHS Markit said October 3.

Among the region’s four major economies, France was the only one registering a pick-up in momentum, with stronger growth in services more than making up for near-stagnant manufacturing. Activity slowed in Germany, Italy and Spain.

Williamson said PMI data suggests the eurozone economy expanded by 0.3% in the third quarter, the same rate recorded in the previous three months. But there are signs the recovery is slowing down.

“While we see the eurozone economy expanding by 1.6% in 2016, even this modest growth is looking unattainable in 2017 given the heightened political uncertainty that lies ahead,” he said.

Jack Allen, European economist at Capital Economics, added: “As rising energy inflation causes headline inflation to pick up more significantly in coming months, sales growth should slow more sharply.”

The slow-and-steady march of higher prices across the eurozone took another step forward, as inflation climbed to its highest level in more than two years.

Prices across the 19-member single currency area rose by 0.4% in the year to September, according a flash estimate produced by Eurostat. That was up from 0.2% in July and August and marks the fastest set of rising prices since the oil price slide began in July 2014.

However, the climb back towards the European Central Bank’s official “below, but close to 2%” target is set to be a slow one.