The German private sector activity shrank for the first time in 6-1/2 years in September, according to the PMI survey data released on Monday.
Growth was also significantly slower in France and Italy.
IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI) is a closely watched indicator of economic growth. It sank from 51.9 in August to 50.4 in September, that is, the lowest point of the index since mid-2013.
The news triggered a decline for the euro currency as the euro zone’s biggest economy is moving towards recession. Germany’s main share index lost 1,4% with banks being among the worst-hit.
The bad news is culminating as Italy will cut its target for economic growth next year to around 0.6%, compared to the standing envisaged projection of 0,8% Reuters reports. Growth in 2019 is expected just short of a recession, standing at 0.1%, against a projection of 0.4%.
The European Central Bank has urged governments to focus on fiscal policy as the scope for quantitative easing is limited. The ECB has cut its deposit rate further into negative territory on Sept. 12 and has promised to renew its bond-buying program to subdue borrowing costs.
Germany’s export-led growth has been severely affected by the Sino-American trade war. That view was confirmed by an interview with Christine Lagarde on Monday to CNBC. The former head of the International Monetary Fund and the incoming President of the European Central Bank talked about the global significance of the Sino-American trade war, which could cut global growth by about 0,8% in 2020.
The prospect of a no-deal Brexit is also weighing on the economy. Car-manufacturers warned on Monday that a no-deal Brexit with production stoppages would cost 50,000 pounds a minute in Britain alone. The auto-sector employs 13.8 million people in the EU or 6.1% of the workforce.