German flash manufacturing PMI recorded a drop in October for the first time in two years.
The manufacturing PMI index fell to 48.9, lower than the forecast of 50, and falling from September’s 50.3.
The survey is based on asking 600 purchasing managers who have to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories.
A reading below 50 signifies contraction and above 50 shows expansion.
Europe’s largest economy appears to be sluggish and business confidence is fading.
“Everything is in the hand of European leaders at the moment because we need to restore confidence for firms to want to expand in the face of all the uncertainty,” said Chris Williamson, an economist at statistics firm Markit.
“We are looking here at probably stagnation of the economy in the third quarter, extending out into October,” he said.
“So it won’t take much to tip the indices into contraction territory in the next couple of months, which means a decline in the fourth quarter.”
One hour after the German PMI data, eurozone manufacturing PMI was released lower the expected. PMI fell to 47.3 from 48.5, and lower than the forecast 48.0.
Services PMI for the region also fell to 47.2 from 48.8. Expectations were for a reading of 48.5.
The euro dipped after the data, falling to 1.3870 against the dollar. Earlier in the European session EURUSD hit a six-week high of 1.3952.