The pound to euro interbank exchange rate fell somewhat this week, in part because Parliament’s return to session has seemingly put a brake on the UK’s Brexit negotiations.

Elsewhere though, the Eurozone’s economy has slowed further, according to respected statistics published this week, while European Central Bank (ECB) President Mario Draghi warned that the currency bloc faces a “prolonged sag”.

Eurozone’s business activity nears stagnation

Eurozone’s business activity nears stagnation

This Monday 23rd September, economics watchdog IHS Markit released its September PMIs for the Eurozone, in which we learnt that the bloc’s business activity came close to stagnating.

The Eurozone’s composite PMI for this month, which combines output in manufacturing and services, fell to 50.4, from August’s 51.9. This is barely above the 50.0 figure that signals expansion, so tells us that the Eurozone’s economic output is near standstill. This may well weigh down the bloc’s GDP (Gross Domestic Product) figures for Q3 2019, between July and September.

In particular, the Eurozone’s business activity eased in September, because Germany’s manufacturing sector, arguably Europe’s engine room, contracted further. To explain, Germany’s factory PMI for this month declined to 41.4, well below investors’ predictions for 44.0, and the worst reading in 123 months, over a decade.

Also, IFO’s monthly current assessment of Germany’s economy rose to 98.5 in September, above August’s 97.3. However, IFO President Clemens Fuest said of these figures that “the downturn is taking a breather” and “in manufacturing, the business climate has only one direction: downward.” IFO predicts that Germany’s economy has now entered a technical recession.

Draghi warns of “prolonged sag”

Meanwhile, outgoing ECB President Mario Draghi gave his last speech to the European Parliament in Strasbourg this week, in which the Italian central banker warned that the Eurozone faces a “prolonged sag”.

In particular, Mr. Draghi remarked that “the balance of risks to the growth outlook remains tilted to the downside” and that “the longer the weakness in manufacturing persists, the greater the risks that other sectors of the economy will be affected by the slowdown”.

So, this bodes ill for the Eurozone’s economic growth in the coming months, although it simultaneously vindicates the ECB’s recent decision to cut interest rates and extend its monetary stimulus.

Looking to today, the European Commission will release September’s consumer confidence, industrial confidence and economic sentiment indicators. Meanwhile, early next week we’ll learn Germany’s latest retail sales, unemployment and inflation statistics. These may influence the value of the pound versus the euro, in addition to Brexit.

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