Euro zone business growth slumped to a two-year low in October as growing trade tensions and tariffs, alongside rising political uncertainty, put a dent in exports and optimism, a survey showed on Tuesday.
IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), seen as a good guide to economic health, fell to 53.1 in October from September’s 54.1, its lowest since September 2016.
It was however above a 52.7 flash estimate and still comfortably higher than the 50 mark which separates growth from contraction, reports Reuters.
“Euro zone companies reported a disappointing start to the fourth quarter,” said Chris Williamson, chief business economist at IHS Markit.
“An export-led slowdown, linked to growing trade tensions and tariffs, has been exacerbated by rising political uncertainty, growing risk aversion and tightening financial conditions.”
The European Central Bank plans to halt its 2.6 trillion euro asset purchase programme by the end of the year, shutting off one of the main sources of stimulus to the euro zone economy.
Meanwhile, the Italian government is in a stand-off with the European Commission over its borrowing. And longstanding German Chancellor Angela Merkel has said she would not be seeking re-election as head of her party.
The ongoing trade war between the United States and China also took its toll on business optimism. The future output index fell to a near four-year low of 60.5 from 62.1.
A sister survey on Friday showed factory activity grew at its weakest pace in more than two years last month as export orders fell for the first time since late 2014 and the latest release suggests the slowdown is enveloping the bloc’s dominant services sector.
The services PMI fell to 53.7 from September’s 54.7, a low not seen since the start of 2017, but above the 53.3 flash reading.
Adding to evidence of a widespread slowdown, new business growth was at its second lowest since the start of 2017. The sub-index registered 53.9, down from 54.8 in September.