The downturn in euro zone business activity accelerated last month as demand in the dominant services industry weakened further, a survey showed today, suggesting there is a growing chance of a recession in the 20-country currency union.
The economy contracted 0.1% in the third quarter, official data has shown, and today’s final Composite Purchasing Managers’ Index (PMI) for October indicated the bloc entered the final quarter of 2023 on the back foot.
HCOB’s PMI, compiled by S&P Global and seen as a good guide of overall economic health, fell to 46.5 in October from September’s 47.2.
This marked its lowest reading since November 2020 when Covid-19 restrictions were tightened on much of the continent.
That was below the 50 mark separating growth from contraction for a fifth consecutive month and matched a preliminary estimate.
“Final PMIs released today confirmed the preliminary estimates and are consistent with our forecast that euro-zone GDP will contract again in Q4,” said Adrian Prettejohn at Capital Economics.
“The outlook also looks very weak, with the new orders PMI falling to its lowest level since September 2012, excluding the early pandemic months, while exports were also particularly weak,” he added.
Manufacturing activity took a further step back in October, according to a sister survey last week which showed new orders contracted at one of the steepest rates since the data was first collected in 1997.
It was a similar picture for services and the new business index, a gauge of demand, was its lowest since early 2021 as indebted consumers feeling the pinch from price rises and increased borrowing costs kept their hands in their pockets.
Services activity in Germany, Europe’s largest economy, slipped back into contraction in October amid persistent weakness in demand while in France it shrank again.
Italian services activity contracted for a third month running and at its fastest pace in a year but Spain bucked the trend and its services sector grew at a slightly faster rate last month.
In another bright spot, investor morale in the euro zone rose more than expected at the start of November, with expectations for the future at their rosiest since early this year, Sentix’s index showed today.
Last month the European Central Bank left interest rates unchanged at record highs, ending an unprecedented streak of 10 consecutive rate hikes, but insisted growing market talk of rate cuts was premature.
Policymakers there, who have failed to get inflation to target, will likely take some cheer from easing price pressures shown in the PMI survey, as both the input and output prices indexes fell from their September readings.