(Bloomberg) --
Germany’s manufacturing slump is taking a harsher toll on the jobs market, adding to pressure on the government to respond with fiscal stimulus.
IHS Markit’s measure of manufacturing and services rose marginally in October, but still signals the slump has extended into the fourth quarter. Factories remain the weak spot, with employment in industry falling the most in almost 10 years.
The report also showed a decline in confidence and a “further softening of inflationary pressures,” as selling prices rose the least in three years. That’s a worry for the European Central Bank, which last month cut interest rates and restarted bond purchases to revive too-low price growth.
There were also some positive elements in the Purchasing Managers’ Index: declines in export orders and manufacturing output eased.
Despite that, the continued worries about Europe’s largest economy weighed on the euro. It gave up an earlier gain on the back of a relatively positive French PMI, and was little changed at $1.1132 as of 10:05 a.m. Frankfurt time.
“Hopes of a return to growth in Germany in the final quarter have been somewhat dashed,” said Phil Smith, an economist at IHS Markit. “Perhaps most concerning are the signs of increasing strain on the domestic economy.”
For the euro area as a whole, the composite gauge rose slightly to 50.2. The outlook for the region is gloomy, with expectations sinking to the worst since 2013, according to Markit.
Bloomberg Economics says the euro-zone economy probably expanded just 0.1% in the third quarter, and may not improve much in the final three months of the year.
“Those figures are below our estimate of trend growth of between 0.3% to 0.4% a quarter. That means the pace of expansion will be insufficient to keep unemployment falling, pay packets thickening and inflation climbing.”
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ECB chief Mario Draghi is presiding over his last policy meeting on Thursday, and is expected give a further rallying cry for governments to turn on the spending taps to bolster growth. His successor Christine Lagarde will take over on Nov. 1.
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