Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

Euro zone recession risks grow as rate hikes bite-PMI

Published Sep 22, 2023 04:03AM ET Updated Sep 22, 2023 07:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: A view shows skyscraper office properties at La Defense business and financial district near Paris, France, June 26, 2023. REUTERS/Stephanie Lecocq 2/2

By Jonathan Cable

LONDON (Reuters) - The euro zone economy is likely contract this quarter and won't return to growth anytime soon, a survey showed, as the dampening effect of central banks' long campaign of interest rates rises becomes clearer.

HCOB's flash euro zone Composite Purchasing Managers' Index (PMI), compiled by S&P Global and seen as a good gauge of overall economic health, rose to 47.1 in September from August's 33-month low of 46.7.

The reading was still below the 50 mark separating growth from contraction, however, and Hamburg Commercial Bank said the bloc's economy would contract 0.4% this quarter, far worse than the flatlining predicted in a recent Reuters poll.

"A recession is becoming increasingly clear in the euro area. Unlike in the winter half-year of 2022/23, the economic weakness is not concentrated in Germany, which has suffered particularly badly from high energy prices," said Christoph Weil at Commerzbank (ETR:CBKG).

"The increase in the ECB key interest rate by 450 basis points in the meantime is slowing down the economy in all euro countries."

Although two years of unprecedented global policy tightening may have reached a peak, major central banks have served notice they will keep interest rates as high as needed to defeat inflation.

The impact is now being clearly felt, with shrinking business activity in Germany, Europe's largest economy, pointing to a contraction there due to a sustained decline in demand for goods and services.

Meanwhile France's dominant services sector contracted at an even sharper pace in September, its PMI showed, as falls in demand and new orders weighed on the euro zone's second-biggest economy.

In Britain, outside the European Union, companies endured a much tougher September than feared, marked by growing unemployment and recession risks.

The Bank of England - which had access to the PMI data - halted its long run of interest rate increases on Thursday as Britain's economy has slowed and inflation fallen, but Governor Andrew Bailey sought to stress the central bank did not think its job was done.

Conversely in Spain, gross domestic product grew 0.5% last quarter, confirming a faster and stronger rebound from the COVID-19 pandemic than in many other places.

OUT OF ORDER

September's fall in overall activity in the euro zone came despite firms barely increasing their charges. The composite output prices index dropped to its lowest since early 2021.

That drop will likely be welcomed by policymakers at the European Central Bank who last week raised their key interest rate to a record high of 4% in their fight against inflation.

The services PMI rose to 48.4 from 47.9 but spent its second month below the breakeven mark this year.

With higher borrowing costs eating into indebted consumers' disposable income they cut back on spending. The services new business index fell to 46.4 from 46.7 - its lowest since February 2021.

The manufacturing PMI has been sub-50 since mid-2022 and the latest headline index dipped to 43.4 from 43.5, confounding expectations in the Reuters poll for a rise to 44.0.

An index measuring output, which feeds into the composite PMI, held steady, albeit still deep in contraction territory.

A chunk of that activity was from factories completing existing orders. The backlogs of work index dropped to its lowest reading since the COVID pandemic was cementing its grip on the world in May 2020.

"Businesses are still working off old orders at the moment, which is keeping output reasonable right now. Still, that suggests a weaker outlook for the months ahead," said Bert Colijn at ING.

Euro zone recession risks grow as rate hikes bite-PMI
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email