Business activity in the euro zone unexpectedly contracted sharply this month, a survey showed on Monday, as the downturn in manufacturing accelerated while the region’s main services industry flatlined.
The economic downturn appears to be widespread, with Germany, Europe’s largest economy, experiencing a deeper decline, while France, the second-largest in the currency union, is recovering again on the back of the Olympics in August. It started to downsize.
This prompted speculation that the European Central Bank would further ease policy, and the euro plunged, marking its biggest one-day drop against the dollar in more than three months.
The preliminary Eurozone Purchasing Managers’ Index (PMI) compiled by S&P Global was 48.9 this month, down from 51.0 in August and below 50, the dividing line between growth and contraction, for the first time since February. It went below.
A Reuters poll had predicted a slight decline to 50.5.
“As the Olympic flame went out, so did eurozone optimism. PMI rose in August, but fell sharply in September.” ING economist Bart Koline said inflation concerns were He said this was further fueling concerns about growth in the region amid the recession.
Overall demand fell for the first time in eight months. The new business index fell from 49.1 to 47.2.
The services PMI fell to 50.5 from 52.9, missing all forecasts in a Reuters poll that had predicted a gradual decline to 52.1.
Eurozone government bond yields fell in response to the data, with German government bond yields dropping the most.
Germany’s economy shrank by 0.1% in the second quarter, and a survey on Monday suggested the slump widened in the third quarter. A recession is usually defined as two consecutive quarters of economic decline.
“A technical recession seems to be in full swing,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, predicting Germany’s economy would contract by 0.2% this quarter.
price pressure eased
The decline occurred even as companies raised rates at a more moderate pace. Services inflation eased, with the output price index at 52.0 compared to 53.7 in August, the lowest level since April 2021.
“The only positive development is that price pressures are easing. This should be a relief for the ECB and increase the chances that policymakers will cut deposit rates again in October,” Capital Economics said. said Andrew Kenningham.
On September 12, the ECB cut interest rates again, signaling a “lower path” for borrowing costs in the coming months as inflation slows and euro area economic growth weakens.
The ECB’s chief economist said last week that the central bank should continue cutting rates gradually, but may need to accelerate them if the economy weakens.
Central banks around the world are easing monetary policy. The People’s Bank of China pumped cash into the banking system for the first time in months on Monday, while the U.S. Federal Reserve began a series of rate cuts last week that had been expected by a deeper than usual 50 basis points (bp).
Meanwhile, businesses outside the European Union (UK) also reported slower growth this month, potentially prompting the Bank of England to consider cutting interest rates again.
The PMI for eurozone manufacturing, which has been below 50 for more than two years, fell to 44.8 from 45.8, compared to an expected reading of 45.6. The production index fell from 45.8 to 44.5.
The factory future production index fell to an 11-month low from 57.5 to 52.0, while business optimism waned and purchasing managers did not expect an imminent turnaround.
