World Economy

Euro zone business growth hits 20-month low, Germany loses momentum

There was more bad news for euro zone on Friday with the latest flash purchasing manager's index (PMI) falling to a near two-year low, indicating that the economic upturn in the region is fragile and failing to achieve any real traction.

The preliminary PMI from Markit showed that business activity in the 19-country region fell to 52.6 in September versus 52.9 in August and below market expectations. This is the lowest seen since January 2015. The PMI is a composite of services and manufacturing activity in the region and the 50-point mark separates expansion from contraction.

"The door remains open for policymakers to provide further policy support later in the year if they see economic conditions moderate further," Rob Dobson, senior economist at IHS Markit said in the press release.

France overtakes Germany

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The data showed that France saw a robust increase in service sector activity which offset its ongoing stagnation in manufacturing. This led the French Composite PMI to rise above its German counterpart for the first time in over four years, according to IHS Markit.

Slower growth in the German powerhouse and elsewhere in the currency union suggest the upturn will remain uneven by country heading into the final quarter (of 2016)," Dobson added.

Germany's data, released earlier on Friday morning, saw the flash composite PMI fall to 52.7 in September versus 53.3 in August, hitting a 16-month low. The figures showed that manufacturers recorded ongoing solid growth but service providers reported a near-stagnation of output during the month.

Oliver Kolodseike, an economist at IHS Markit said that the rate of expansion in Germany remained "uninspiring and much weaker than the levels seen around the turn of the year."

"A big concern is the divergent trends within the economy, with service providers struggling to eke out any meaningful growth ... Weak demand continued to curb inflows of new business and companies reported a lack of work outstanding, boding ill for output growth in coming months," he said in a press release.

ECB to act?

Meanwhile, Stephen Brown, a European economist at Capital Economics, believes that pressure on the European Central Bank to take action will continue to mount.

"We expect it to announce an extension of its asset purchase program in December, if not before."

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