51.7 and falling: the euro zone still grows, but its customers have stopped ordering

The euro zone’s economy grew again in October, but more slowly than anyone had pencilled in. S&P Global’s final composite purchasing managers’ index came in at 51.7, down from 53.1 in September and below the flash estimate of 51.9¹. It is a four-month low. Anything above 50 means activity is still rising, so this is a slowdown, not a fall. The services index, the bigger part of the economy, slipped to 51.4 from 53.0¹.

The headline hides the line that matters. New orders “grew only marginally”, Reuters reports, after three months of stronger growth, and demand for services edged lower¹. Export orders rose for a third month but lost pace¹. Employment fell marginally, with services firms cutting and factories adding a few people¹. Business confidence weakened for a third month in a row and stayed below its long-run average¹.

The reason is printed on the invoices. Input-price inflation rose to a five-month high, and firms raised their own prices sharply, though slightly less than in September¹. Chris Williamson, chief business economist at S&P Global Market Intelligence, linked it “largely” to higher energy prices, “which are squeezing customers’ budgets and discouraging spending”¹. That is the war in the Gulf arriving on European invoices: the Strait of Hormuz, which usually carries a fifth of the world’s oil and gas shipments, was effectively closed after the war began in February, and a preliminary deal in June to reopen it collapsed within weeks; ships are still being hit².

By country, France slipped back into contraction after a brief recovery in September; Germany, Italy, Spain and Ireland still grew, though all lost momentum¹. Williamson’s own reading is that the data point to “a respectable though unexciting 0.3% rate” of growth at the start of the fourth quarter¹.

Respectable and unexciting is not a crisis. It is a payroll that still gets paid and an order book that has gone quiet. For you, the useful habit is the same one purchasing managers have: watch what customers ask for next month, not what was delivered last month. The European Central Bank left rates on hold last week, and economists polled by Reuters expect a rise in December¹. Dearer energy and dearer money at once is a squeeze that ordinary invoices will feel before any headline does.