Eurozone PMI falls short as growth slows, fuelling ECB tightening speculation

• The euro area's flash services PMI for October came in at 51.7, below the 52.5 forecast.
• The prior reading had been 53.0.
• In the manufacturing sector, the flash PMI stood at 52.4, compared with a forecast of 52.7.
• That was down from 52.9 a month earlier.
• The composite flash PMI registered 51.9, weaker than the 52.7 predicted.
• This compared with 53.1 previously.

Given the softer data from France and Germany, the euro area numbers falling short of expectations were not wholly unexpected. Nevertheless, business activity continued to expand, with output and new orders both increasing for a fourth straight month, albeit at the slowest pace in that stretch.

A notable factor weighing on growth was a renewed contraction in France's services sector. However, weakness was also apparent elsewhere, as growth slowed in the rest of the region across both manufacturing and services.

On pricing, manufacturers experienced a sharp increase in input costs in October, mainly due to higher energy prices. This rise was the strongest since May and surpassed the average for the year so far. In contrast, output price inflation moderated in October, with both Germany and France reporting softer increases in selling prices relative to September. For the remainder of the euro area, the rate of inflation accelerated on the whole.

Overall, the data shows that higher interest rates are beginning to curb demand. At the same time, the combination of sustained growth and stubborn inflation pressures is expected to fuel speculation of more aggressive tightening by the ECB going forward.