Europe looks to be heading toward a downturn as its biggest economies, Germany and France, battle political and economic woes at home. Business activity in the manufacturing and services industries in both countries — Europe's largest and second-largest economies, respectively — fell much more than expected in September, data showed Monday. In Germany, the HCOB flash composite purchasing manager's index (PMI), measuring business activity across both sectors, fell from 48.4 in August to 47.2 in September, a seven-month low and below expectations of 48.2. In France, meanwhile, the composite PMI hit an eight-month low of 47.4 in September, down from 53.1 in August and below expectations of 50.6. A reading above 50 indicates expansion, while a figure below that suggests contraction. For the euro zone as a whole, S&P Global, which compiles the data, said business activity in the single currency area had decreased in September for first time in seven months, falling to 48.9 in September from 51 a month before.

The PMI data — a closely-watched gauge of economic activity in the region — are the latest figures to indicate a sharp slowdown in Europe's traditional growth drivers, with both Germany and France tackling political upheaval and economic uncertainty at home. "The big decline in the euro-zone Composite PMI suggests that the economy is slowing sharply, that Germany is in recession and the France's Olympics boost was just a blip," Andrew Kenningham, chief Europe economist at Capital Economics, said in analysis Monday. "With France's new minority government now planning to tighten fiscal policy significantly, prospects for growth in France look increasingly poor," Kenningham noted, while for Germany, he said "the surveys also suggest that Germany is falling deeper into recession."

'Sick man' of Europe

Germany's downturn is not new, with the country's once-booming export-orientated economy flirting with recession for well over a year now. Ahead of the latest PMI data, economists had expected Germany to grow just 0.3% in 2024, according to the Bundesbank; the European Commission's spring forecast was even more pessimistic, predicting just 0.1% growth this year. The country's latest PMI data shows that a "technical recession seems to be baked in," Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB), said in analysis Monday. He expects German GDP for the current quarter to fall 0.2% compared to the quarter before. "In the second quarter GDP already shrank at a rate of 0.1%. There is still some hope that the fourth quarter will be better as higher wages combined with lower inflation should boost not only real income but also consumption, supporting domestic demand," he added.

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