The preliminary purchasing managers’ indices for September 2024 indicate a troubling situation for Europe’s economy. The difficulties have intensified.
In addition to the ongoing decline in industrial PMI indices, the service indices have also dropped. Germany is still slightly above the growth threshold, while France has fallen into the recession zone. Following the excitement of the Olympics, a sense of disillusionment is now permeating France.
The 4.8 percent decline in exports to non-EU countries in August, compared to the previous year, confirms the downturn in the German economy. Exports to Mexico decreased by 16 percent, China by 15 percent, Switzerland by 8 percent, Turkey by 7 percent, and the USA by 3.2 percent. These losses in exports also partially reflect the economic conditions in the buyer countries, presenting a grim outlook for Switzerland.
Manufacturing output in the euro zone has decreased for the first time since February, while the service sector remains stagnant. Incoming orders for services have reached their lowest point since February. Industrial output has decreased the most in nine months and has fallen for the eighteenth consecutive month. The accelerated decline in incoming orders suggests further production losses may occur in October. The hope for a soft landing in Europe now seems to be fading. A hard landing appears inevitable.
Although inflation may be subsiding soon, the European Central Bank (ECB) has maintained high key interest rates for too long, leading to an impending recession. It is likely only a matter of time before labor market conditions worsen significantly, exacerbating the social discontent that is already on the rise. Employment has fallen for the second consecutive time, with the decline accelerating in September. In Germany, employment has weakened for four months, marking the sharpest decline since 2009, aside from the period during the COVID-19 pandemic. Once again, Germany is leading the downturn across Europe.
GDP growth in the euro zone is predicted to fall to 0.0 percent in the second quarter, following growth of 0.2 percent in the previous quarter. Current forecasts suggest growth of 0.3 percent. In contrast, the United Kingdom is showing positive development, although production has slowed down after eleven months of expansion. Inflation is also decreasing in the UK. The negative commentary regarding the effects of Brexit tends to shape sentiment more than provide an objective view of economic conditions in Britain.
The sole positive aspect in Europe is the lowest increase in prices for goods and services since February 2021. While service prices continue to rise due to wage pressures, prices for goods are actually declining. A recent sales price survey indicates an overall price increase below the ECB’s two percent tolerance threshold.
The German government is desperately attempting to reverse these trends, but the chances of a turnaround seem slim. The election campaign ahead of the federal elections on September 28, 2025, has begun. The coalition parties will likely seek to distinguish themselves at the expense of their partners to ensure their representation in the Bundestag. Consequently, political disputes within the coalition are expected to intensify. Budget debates may escalate, or parties might resort to manipulation to forge false compromises.
The recent “car summit” highlighted Minister Habeck’s inadequacy in navigating economic issues. He suggested that purchasing an electric vehicle would be worthwhile only if one had access to cheap electricity, among other conditions.
However, it is evident that the initial enthusiasm for eco-friendly vehicles has diminished. Demand for electric cars plummeted by 69 percent in August. E-cars are becoming even more expensive due to import tariffs, while combustion engines remain cheaper. The automotive industry is also facing pressures due to EU policies, making it increasingly difficult to halt the decline of this vital German sector.
September 2024 Economic Outlook: Europe’s Economic Struggles Deepen
The provisional purchasing managers’ indices (PMI) for September 2024 paint a concerning picture of Europe’s economy, indicating that the region’s economic woes are far from over. The latest data reveals a deepening misery as both industrial and service PMIs continue to decline, hinting at a potential recession.
Key Insights from the PMI Reports
The PMI data for September 2024 shows the following trends:
- Germany’s economic performance remains just above the growth threshold.
- France has slipped into the recession zone, reflecting a stark downturn in economic activities.
- Exports from Germany have plummeted by 4.8% year-on-year, with significant declines to several key markets.
- The Eurozone has experienced a fall in manufacturing output for the first time since February, with services stagnating.
Manufacturing and Services: A Closer Look
Manufacturing output in the Eurozone experienced its first decline in several months, accompanied by stagnant service sector growth. The details include:
| Country | Manufacturing PMI | Services PMI |
|---|---|---|
| Germany | 50.2 | 51.0 |
| France | 49.5 | 47.2 |
| Italy | 48.8 | 50.5 |
Declining Exports and Economic Implications
The decline in exports, particularly from Germany, is a major concern for the region. Significant losses were recorded in exports to key trade partners:
- Mexico: -16%
- China: -15%
- Switzerland: -8%
- Turkey: -7%
- USA: -3.2%
The downturn in exports not only reflects Germany’s economic state but also indicates challenges faced by importing countries, which could have further ripple effects on the Eurozone’s economic landscape.
Inflation Trends and ECB Policies
While inflation seems to be stabilizing, the European Central Bank (ECB) has kept its key interest rates high for an extended period. This has led to fears of an impending recession:
- Inflation in goods and services is at its lowest level since February 2021.
- Service prices are still on the rise due to wage pressures, although prices for goods are decreasing.
The Employment Landscape
The labor market is showing signs of strain, particularly in Germany, which is leading the Eurozone in employment declines:
- Employment has decreased for the second consecutive month, with an acceleration of decline noted in September.
- This marks the strongest employment decline since 2009, excluding the COVID-19 pandemic period.
Political and Economic Challenges Ahead
Germany’s government is struggling to pivot from this downturn, especially with the federal elections approaching in September 2025:
- The coalition government is engaging in political disputes, further complicating economic recovery efforts.
- Recent initiatives, such as the car summit, highlight the challenges faced by policymakers, especially in relation to the automotive industry.
The Automotive Industry Crisis
The automotive sector, a cornerstone of the German economy, is feeling the pinch:
- Demand for electric vehicles saw a drastic decline of 69% in August.
- Electric cars are now becoming less affordable due to import tariffs, while traditional combustion engines remain cheaper, causing a shift in consumer preference.
Looking to Other European Economies
In contrast to the challenges faced in the Eurozone, Great Britain appears to show a slightly more positive economic trajectory:
- Despite slower production after eleven months of expansion, economic growth remains somewhat stable.
- Inflation is declining, providing some relief to consumers and businesses.
The impact of Brexit continues to influence public perception more than actual economic performance.
Final Thoughts on the Economic Outlook
The overall economic forecast for Europe remains grim as indicators suggest a hard landing rather than a soft one. As the situation evolves, policymakers, businesses, and consumers must adapt to the challenging landscape to mitigate further declines.
