Weak service: than a record decline in service activity threatens the eurozone economy

The growth of business activity in the eurozone services sector has slowed to a minimum over the past 10 months - for the first time since February, the corresponding PMI index fell to 51.5 points. Such data are presented in a review of the analytical agency IHS Markit.

Traditionally, the PMI index reflects the real state of a particular industry. A value above 50 points indicates a positive economic situation, below 50 points - the stagnation of the sector.

Although the service sector in Europe is still growing moderately, experts predict further slowdown in the sector. Experts explain the expected deterioration in the dynamics of the ongoing decline in the industry of the region. So, the production eurozone PMI for 10 consecutive months has remained below the psychological mark of 50 points and in November amounted to 46.6 points.

“Our survey revealed signs that a sharp decline in production began to spread to the service sector. At the same time, employment growth rates fell to their lowest level in almost five years, as companies are increasingly cautious in hiring employees, ”says the IHS Markit study.

According to Anton Pokatovich, BCS Premier chief analyst in an interview with RT, a drop in production disrupted the stability of the European labor market and further weakened consumer demand in the region. As a result, the service sector began to weaken.

“The eurozone PMI in the service sector has maintained its position due to the absence of any critical problems in the European labor market. Meanwhile, the decline in production activity sooner or later spreads to other sectors of the economy. This is happening in Europe now, ”the analyst added.

Most of all, the drop in demand affected such areas of the European services sector as finance, education and medicine. This was in an interview with RT by the head of the laboratory of the Institute of Applied Economic Research, RANEPA Alexander Abramov.

“The deterioration of the situation in the services sector may be partly due to some slowdown in the income of European citizens and their demand for these services. Certain barriers that may arise in the provision of services between countries also affect. For example, the slowdown in the financial sector in Germany and other European countries may be due to the fact that it has become more difficult for them to provide services in the US market, ”said Alexander Abramov.

According to experts of IHS Markit, in many respects the difficulties of European business are connected with the growth of geopolitical tensions in the world. First of all, we are talking about the uncertainty surrounding Brexit and the US trade war with China.

Recall that in 2018 in Beijing, Beijing was accused of illegally acquiring American technology and increased duties on Chinese goods imported into the country. China has introduced retaliatory measures. After a series of negotiations in May 2019, the United States began to aggravate the conflict: in addition to introducing new duties, American technology companies began to stop cooperation with Huawei. In August, the countries again failed to compromise on the terms of the trade deal and introduced new mutual restrictions in September.

In October, the parties again intensified negotiations, and in mid-November, Donald Trump announced the possibility of signing an agreement in the near future. Meanwhile, the American president threatened China with a new increase in duties in the event of another failure of the transaction.

“For the eurozone, consumer optimism in both the US and China is very important. While there are serious trade disagreements, this affects the demand for European goods and services, ”said Alexander Abramov.

Note that the most noticeable weakening of business activity in the eurozone affected the region’s largest economy - Germany. At the end of November, the German PMI service sector updated its three-year low and for the first time since October 2016, it fell to 51.3 points. The country's industrial indicator has grown slightly, but is still below 50 points - at the level of 43.8 points.

The observed dynamics has already affected the growth rate of German GDP. So, in the III quarter of 2019, the German economy grew by only 1% compared to the same period last year. The relevant data are provided by the Federal Statistical Office of the country.

As an analyst with the Alpari information and analytical center Vladislav Antonov said in an interview with RT, German GDP growth may further slow down in the coming months. Moreover, other Eurozone countries are at risk of colliding with a recession in 2020.

“The slowdown in the German economy will continue in the fourth quarter of 2019. At the same time, if the United States postpones the conclusion of a trade agreement with China for 2020, and geopolitical tensions increase in Britain, then in this case some of the eurozone countries will face a recession next year, ”Antonov concluded.