A steepening drop in eurozone business activity last month is likely to put paid to any hopes the currency union avoids recession, just as elevated inflation puts pressure on the European Central Bank (ECB) to act, a survey showed.
S&P Global’s final composite Purchasing Managers’ Index (PMI) for the eurozone fell to a 20-month low of 48.1 last month from August’s 48.9, below a preliminary 48.2 estimate. Anything below 50 indicates contraction.
“Any hopes of the eurozone avoiding recession are further dashed by the steepening drop in business activity signaled by the PMI,” S&P Global Market Intelligence chief business economist Chris Williamson said.
Photo: EPA-EFE
“Not only is the survey pointing to a worsening economic downturn, but the inflation picture has also deteriorated, meaning policymakers face an increasing risk of a hard landing as they seek to rein in accelerating inflation,” he said.
Reversing a downward trend, both the composite input and output prices indices rose sharply. The input prices PMI jumped to 77.1 from 72.3.
Rising prices — particularly energy costs — alongside a gloomy economic outlook, have kept consumers wary and the PMI for the bloc’s dominant services industry sank to 48.8 last month from 49.8, its lowest since February last year.
“Soaring inflation, linked to the energy crisis and war in Ukraine, is destroying demand at the same time that business confidence is slumping to levels not seen since the region’s debt crisis in 2012, excluding [COVID-19] pandemic lockdowns,” Williamson said.
“Companies and households alike are therefore cutting back on discretionary spending and investment in preparation for a harsh winter,” he said.
Yesterday’s data come after a sister survey on Monday showed manufacturing activity across the eurozone declined further last month, as a growing cost-of-living crisis hurt demand while soaring energy bills limited production.
The decline in activity across the region but with prices rising much faster than the ECB would like leaves the central bank walking a tightrope as it tries to curtail inflation while also supporting growth.
Last month, the ECB raised its key interest rates by an unprecedented 75 basis points and promised further hikes, prioritizing the fight against inflation even as the bloc is likely heading toward a winter recession and gas rationing.
A combination of those downbeat factors meant optimism fell sharply.
The services business expectations index fell to 53.6 from 56.6, its lowest since May 2020, when the COVID-19 pandemic was cementing its grip on the world.
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