Private-sector activity in the eurozone kicked off the final quarter of 2023 with another dismal showing, suggesting the economy may be in recession.
S&P Global’s purchasing managers’ index slowed to a three-year low in October.
“In the eurozone, things are moving from bad to worse,” according to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“We wouldn’t be caught off guard to see a mild recession in the eurozone in the second half of this year, with two back-to-back quarters of negative growth.”
The economy faces several headwinds, including a rate-hiking campaign by the European Central Bank (ECB) and a slowdown in global activity.
Rising energy prices as a result of the conflict in the Middle East risk exacerbating its difficulties.
Banks in the eurozone tightened credit standards further in the three months through September due to higher borrowing costs and the worsening economic backdrop, the ECB said.
Data for the third quarter due a week from now are likely to show eurozone output contracted 0.1% in the period, according to Bloomberg Economics.
That weakness may focus ECB officials meeting this week in Athens.
After a record tightening cycle of 10 consecutive interest-rate hikes, policymakers have indicated that they will keep borrowing costs on hold for some time.
Traders priced in more easing by the central bank next year to support the economy, with a quarter-point cut fully seen by June.
They still view a pause later this week as all but guaranteed.
October’s downturn in the survey was broad-based across the eurozone, S&P Global said.
Indicators based on business surveys in the top two economies — France and Germany — remained well below the 50 mark, and the contraction affected manufacturing as well as services in both countries.
More weakness also surfaced in the labour market — a relative bright spot until now.
"Service providers’ hiring came almost to a standstill,” Mr de la Rubia said.
“Manufacturing companies are not just continuing to cut staff, they are ramping up job-shedding plans.
"This led for the first time since January 2021 to an overall decrease in employment.”
German data point to another recession and confirm the widely held view that it will also suffer a full-year contraction, according to Mr de la Rubia.
“Germany is kicking off the final quarter on a sour note,” he said.
“Manufacturing output continues to fall at a steep rate, and activity in the services sector, which grew last month, swung into the red again,” Mr de la Rubia said.
In France, manufacturing activity shrank at a faster pace due to weak demand, and an index of expectations in the sector fell to the lowest in three-and-a-half years, with “no relief in sight”.
- Bloomberg
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