Euro Zone Economy Likely Shrank Last Quarter, Survey Suggests
A recent survey indicates that the euro zone economy likely contracted in the last quarter, with demand falling at the fastest pace in nearly three years. The survey, known as HCOB’s final Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, is considered a reliable indicator of overall economic health. It showed that the PMI nudged up to 47.2 in September from August’s 46.7, but remained below the 50 mark that separates growth from contraction for the fourth consecutive month.
The downturn was observed in both the services and manufacturing sectors, highlighting the broad-based nature of the economic decline. In addition, official data revealed that retail sales in the euro zone experienced a greater drop than anticipated in August, indicating weaker consumer demand amid high inflation.
Franziska Palmas, an economist at Capital Economics, expressed concern about the euro zone economy. “The drop in retail sales in August and weakness in the final PMIs for September are consistent with our view that the euro zone economy will fall into recession in the second half of 2023,” Palmas said.
The surveys also provided insights into the economic performance of individual euro zone countries. In Germany, the service sector experienced a modest increase in activity in September. However, in France, the industry contracted at the fastest rate in almost three years due to declining new orders and export business. Italy’s services industry contracted slightly for the second consecutive month, while Spain’s showed some resilience and expanded slightly after dipping in August.
Outside of the European Union, the United Kingdom’s services companies experienced a less severe downturn than initially expected. This can be attributed to a surprise fall in inflation and the Bank of England’s decision to keep interest rates unchanged.
The survey’s composite new business index, which measures overall demand, fell to 44.4 in September from 44.6 – the lowest level since November 2020, when the world was grappling with the COVID-19 pandemic. The PMI for the euro zone’s dominant services industry remained below 50 for a second month, although it did rise to 48.7 from 47.9. These numbers follow a separate survey that indicated manufacturing activity in the bloc continued to decline significantly, with demand shrinking at a rarely surpassed pace since data collection began in 1997.
While there was a glimmer of hope in the form of increased hiring in the services sector, with the employment index rising to 51.5 from 50.4, Cyrus de la Rubia, an economist at Hamburg Commercial Bank, cautioned against over-optimism. “There is still a frenzy for workers in the services sector. Indeed, euro zone firms bulked up their teams at a faster pace than in August. That is a head-turner, considering new business is in the doldrums,” said de la Rubia.
Overall, the survey results paint a worrying picture of the euro zone economy, with declining demand, rising borrowing costs, and higher prices taking a toll on consumer spending. As the region grapples with these challenges, economists are growing increasingly concerned about the possibility of a recession in the coming months.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )