PMIs hint at Eurozone contraction

Indicies fall to 5-month low.

Diggers sit at a construction equipment sale
Ready to go: Construction has fallen in the Eurozone. Photograph: Getty Images

Purchasing managers indices have fallen for the third month in a row in the Eurozone, to their lowest point in five months. PMIs are important economic predictors which tend to indicate coming changes to the economy, so the fall implies that the economic contraction in the Eurozone isn't likely to end soon, contrary to the predictions of many economists.

The composite index, which looks at manufacturing output and business services, fell for the third month in a row to 47.4, down from 49.1 in March. A figure of 50 in the index indicates that there is likely to be no change, so a PMI of 47.1 signals a faster rate of decline of private sector economic activity. Output has fallen seven times in the past eight months. As the chart above shows, the PMI tends to track GDP growth  cleanly, so the new information indicates that the Eurozone is likely to have contracted this month.

Stock markets took a hit this morning following the news, with Spain’s Ibex 35 index down 2.8 per cent, only half a percentage point above its lowest close in over than 9 years, and the FTSE Eurofirst 300 lost 1.8 per cent.