Central European markets were hit on October 24 as the weakest Purchasing Managers' Index (PMI) figures for the Eurozone in 40 months predicted a sharp slowdown in economic activity in the fourth quarter. Of particular concern to Central Europe's export-dependent economies is the fact that a drop in manufacturing output led the fall.
The Eurozone sank further into decline at the start of the fourth quarter, with the combined output of the manufacturing and service sectors dropping at the fastest rate since June 2009, according to Markit's PMI. At 45.8, the October figure represents the third successive fall for the indicator. Output in the Eurozone has fallen continually since September 2011, with the exception of a marginal increase in January.
Output continued to fall in response to a further, marked contraction in new orders. The rate of decline in new business eased slightly since September, which had seen the largest drop since June 2009.
With the likes of the Czech Republic, Slovakia and Hungary all sending over 80% of exports into the Eurozone, the fact that manufacturing continued to see the steepest decline of the sectors feeding into the index is clearly bad news. The sector's PMI reported a two-month low of 45.3, while services, although still below the magic 50 threshold that distinguishes expansion from contraction, rose to a two-month high at 46.2.
The only slight silver lining is that Germany - which is the destination for the bulk of Central Europe's exports - saw its decline in output decelerate for a second month running. That said, the country's manufacturing continues to contract, and the report's author notes the country's first back-to-back monthly fall in employment since early 2010.
Chris Williamson, chief economist at Markit, said:"The Eurozone has slid further into decline at the start of the fourth quarter. The survey is running at a level which is historically consistent with the region's economy contracting at a quarterly rate of over 0.5%. Official data have shown surprising resilience over the summer compared to the survey data, but the underlying business climate has clearly deteriorated markedly in recent months. While GDP may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter."
Following the release of the report, emerging market stocks hit a nine-day low, and Central European currencies extended losses, reported Reuters. Hungary led the losses as its stock market shed 1.63% to hit a three-week low, albeit pushed also by doubts over the government's latest policy moves and ahead of detailed September budget figures. The zloty and dinar fell more than 0.3%, while the Czech crown hit a 10-day low against the euro.
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