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The outlook for the eurozone economic system has worsened after enterprise exercise retreated greater than anticipated this month, in line with a carefully watched survey of firms.
S&P International’s newest month-to-month ballot of buying managers throughout the one foreign money zone added to fears of an financial contraction by revealing a pointy drop in new enterprise orders, the primary fall in employment for two-and-a-half years and a cooling of worth pressures.
The HCOB flash eurozone composite buying managers’ index, a measure of exercise at firms throughout the 20-country bloc, fell to a 35-month low of 46.5 after contraction of exercise in each the companies and manufacturing sectors.
The end result was additional under the 50 mark that separates contraction from growth than the 47.4 studying forecast by economists in an earlier Reuters ballot.
“This isn’t fairly,” mentioned Claus Vistesen, an economist at Pantheon Macroeconomics, including that the PMI survey was “pointing to a transparent downshift in development within the second half of the yr”.
![Line chart of Purchasing managers' index showing Eurozone businesses are suffering another downturn](https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fd6c748xw2pzm8.cloudfront.net%2Fprod%2F5e5c1ef0-725b-11ee-9f81-0909cac354a1-standard.png?source=next-article&fit=scale-down&quality=highest&width=700&dpr=1)
S&P International mentioned the fifth consecutive month-to-month decline in eurozone enterprise exercise was the steepest since November 2020. Excluding the months affected by pandemic lockdowns, it was the heaviest fall for a decade. Backlogs of orders shrank on the quickest fee since June 2020. The speed of firms’ promoting worth inflation was the bottom since February 2021.
Falling enterprise exercise and decrease demand led to the primary decline in employment since early 2021, it mentioned, including to rising indicators of job-cutting within the area’s labour market, which has hitherto remained resilient.
The eurozone economy has stagnated or produced solely tepid development because the closing months of final yr and a few economists anticipate a quarter-on-quarter contraction in gross home product when knowledge is launched for the July to September interval on October 31.
The bloc’s economic system has been hit by falling exports and a pointy rise in gasoline costs that has hit manufacturing in energy-intensive industries significantly exhausting. Europe’s deteriorating financial outlook contrasts with indicators of extra resilient growth in the US.
“Within the eurozone, issues are transferring from dangerous to worse,” mentioned Cyrus de la Rubia, chief economist at Hamburg Industrial Financial institution. “We wouldn’t be caught off guard to see a light recession within the eurozone within the second half of this yr with two back-to-back quarters of detrimental development.”
In one of many few chinks of hope from the PMI survey, there was “a marginal enchancment” in firms’ outlook for his or her output within the coming yr, significantly within the companies sector, “although the general stage of sentiment remained among the many worst seen over the previous yr,” mentioned S&P International.
The deteriorating development outlook strengthened expectations that the European Central Bank would call a halt to its current rate of interest rises for the primary time in 15 months when it meets in Athens on Thursday. “One other ECB rate of interest hike within the coming months is changing into more and more unlikely,” mentioned Christoph Weil, an economist at German lender Commerzbank.
Including to the gloomy outlook, the ECB revealed its quarterly survey of business banks on Tuesday, exhibiting that they had tightened their lending requirements additional within the third quarter, whereas demand for brand new borrowing by households and companies additionally declined.
“Cumulative web tightening since 2022 has been substantial, which is in line with the continuing vital weakening in lending dynamics,” it mentioned.