Eurozone economic activity plummeted further in October and Germany, the EU’s top economy, appears to be heading for recession amid the cost of living crisis, new figures show.
The S&P Global Flash Eurozone’s composite Purchasing Managers’ Index (PMI), which is seen as a good guide to overall economic health, fell to 47.1 this month from 48.1 in September, as Europe started to panic. was being hunted and energy prices soared.
A reading below 50 indicates an economic contraction.
Factories have been hit particularly hard by the surge in energy prices and as supply chains continue to recover from the coronavirus pandemic and take a hit from Russia’s invasion of Ukraine.
While the 19-country eurozone was likely to contract in the fourth quarter, the picture was worse in Germany, where the PMI fell to 44.1 from 45.7 in September.
That was the lowest level since the first business closures in Germany when the COVID-19 pandemic hit.
The S&P Global Flash Eurozone’s composite Purchasing Managers’ Index (PMI), which is considered a good guide to general economic health, fell to 47.1 this month from 48.1 in September as Europe skyrocketed on the rising inflation and high energy prices.
“The flash PMIs for October provide further evidence that the eurozone is sliding into a pretty deep recession, but inflationary pressures remain intense,” said Andrew Kenningham of Capital Economics.
Meanwhile, the UK economic downturn also worsened in October, with private sector growth slowing to a 21-month low.
Production fell for the third month in a row after a period of political turbulence that dragged on financial markets.
The UK PMI fell to 47.2 in October, falling below September’s 49.1.
Meanwhile, both manufacturing and services in Germany showed an accelerated contraction, though that was yet to lead to job losses, the survey found.
German companies were “deeply pessimistic” about the outlook for the year ahead.
In France, the EU’s second largest economy, the economy is stagnating, with a PMI of 50 from 51.2 in September.
While France is less affected by rising inflation than other countries in Europe, rising prices are still putting pressure on consumers, leading to a sharp drop in factory orders.
Across the eurozone, the PMI indicated factory output had fallen for the fifth straight month, at a rate unprecedented since the worst of the pandemic.
Factories have been particularly hard hit by the surge in energy prices and supply chains still recovering from the coronavirus pandemic being hit by the Russian invasion of Ukraine (file image of the production of Mercedez Benz cars in Rastaat, Germany
Supply congestion and shortages had eased somewhat, against a background of declining demand. While demand for inputs declined, rising utility bills and wage pressures kept costs high.
A recession across the eurozone “seems increasingly inevitable,” said Chris Williamson, chief economist at S&P Global Market Intelligence.
“The energy crisis in the region remains a major concern and a drag on activity, especially in energy-intensive sectors.”
The PMI data came ahead of a Thursday meeting of the Governing Council of the European Central Bank, which is expected to trigger a major rate cut in a bid to cool inflation.
Inflation in the 19-country eurozone was almost 10 percent in September, five times the ECB’s target of two percent.
The German economy, whose energy-guzzling industries relied heavily on Russian gas before the war, is now projected to contract 0.4 percent in 2023.
Higher interest rates typically dampen business activity as credit becomes more expensive and consumer spending declines.
The EU is struggling to find ways to lower energy prices.
A number of measures were agreed at a summit last week, but an important one, capping wholesale gas prices, was under consideration in the future by Germany, which fears gas supplies will be diverted to more lucrative markets in Asia.
Berlin has pulled out a massive 200 billion euros ($197 billion) plan to protect German consumers from high energy prices, sparking unrest among EU partners over its go-it-alone approach that threatens to disrupt the internal market .
At the summit, German Chancellor Olaf Scholz reluctantly agreed to let the bloc look further into the price cap measure, but only after an impact analysis.
The International Monetary Fund said on Sunday that a downturn in parts of Europe could lead to “deeper recessions” across the continent.
Government support to tackle energy costs and inflation would “only partially offset” those tensions, it said.
The IMF predicted that Germany and Italy would enter recession next year.