Global growth slows as eurozone economy contracts

Last week's data showed that the global economy probably decelerated further entering the fourth quarter, weighed down primarily by a eurozone economy that may be on the verge of a recession.

The JPMorgan global all-industry output index derived from surveys of purchasing managers around the world fell to 51.4 in October from 52.0 in September.

JPMorgan Global All-Industry Indices
	September	October
Output	52.0	51.4
New orders	51.4	50.5
Input prices	57.4	54.1
Employment	49.8	51.4

The decline in the global output index was driven by the euro area. The eurozone composite output index compiled by Markit plunged further below the neutral 50.0 threshold to a 28-month low of 46.5 in October from 49.1 in September. This was the sharpest fall in the index since November 2008. The eurozone manufacturing PMI fell to 47.1 in October from 48.5 in September while the services PMI fell to 46.4 from 48.8.

Chris Williamson, the chief economist at Markit, said that the October PMI data for the euro area suggests “a strong likelihood that the economy could contract in the fourth quarter” unless business picks up markedly in November, itself considered unlikely.

The weak outlook for the eurozone economy appears to be shared by the European Central Bank. Last week, it cut interest rates by 25 basis points. During the press conference following its monetary policy meeting, President Mario Draghi said that the economy was experiencing “slow growth heading towards a mild recession by the end of the year”.

In contrast to the euro area, the latest purchasing managers surveys in Japan provided positive signals on the economy. The composite output index rose sharply to 52.4 in October from 47.0 in September. The October reading was the first above 50.0 since February. A jump in the services PMI to 52.3 in October from 46.4 in September helped drive the increase in the composite index. The manufacturing PMI also rebounded in October, rising to 50.6 from 49.3 in September.

The surveys of purchasing managers in the United States also signalled growth in the economy in October, albeit at a slower rate. The Institute for Supply Management's manufacturing PMI fell to 50.8 in October from 51.6 in September while the non-manufacturing index dropped slightly to 52.9 from 53.0.

Another indication that the US economy continued to grow as it entered the fourth quarter was the employment report on Friday. Although the establishment survey showed that non-farm payrolls increased by just 80,000 last month, the household survey showed a gain of 277,000 jobs, helping to push the unemployment rate down to 9.0 percent from 9.1 percent in September.

So the Japanese and US economies appear to have continued growing at the beginning of the fourth quarter but the eurozone economy appears to be contracting and may be heading for a recession.