Fears of a eurozone recession are growing

Business activity in the euro zone is falling rapidly as demand weakens significantly, raising the probability of a recession there.

On November 6, the Eurozone Purchasing Managers’ Index (PMI) released by S&P Global in October came in at 46.5 points. This figure is much lower than 47.2 in September and is also the lowest since November 2020, when Covid-19 lockdowns tightened the region’s economy .

A PMI below 50 indicates contraction in manufacturing activity. This is the fifth consecutive month that the eurozone PMI has been below 50.

Last week, official figures showed the region’s GDP contracted 0.1% in the third quarter. The eurozone is entering the final quarter of the year with a bleak outlook, having contracted in three of the last four quarters.

"Today's PMI confirms the preliminary figures, in line with our forecast that eurozone GDP will contract further in the fourth quarter. The outlook looks very weak. New orders are at their lowest since September 2012, excluding the early months of the pandemic. Exports are also particularly weak," said Adrian Prettejohn at Capital Economics.

People walking on the streets of Paris (France). Photo: Reuters

Another survey released last week also showed manufacturing activity in the eurozone plunged sharply in October, with new orders falling by the most since 1997.

The picture is no better for the services sector, with an index tracking demand for the sector now at its lowest since early 2021, as consumers are reluctant to spend money amid rising prices and interest rates.

Services activity in Germany, Europe’s largest economy, also contracted in October due to weak demand. A similar situation occurred in France. Italy’s services sector contracted for the third month in a row.

Last month, the European Central Bank (ECB) decided to keep interest rates at record highs, ending a streak of 10 consecutive rate hikes. However, the prospect of a rate cut is considered premature. Inflation in Europe has cooled, but is still double the ECB's target.

Ha Thu (according to Reuters)

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