Economy

Euro Zone Downturn Deepened In Oct, Winter Recession Likely -PMI

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Economy

Euro Zone Downturn Deepened In Oct, Winter Recession Likely -PMI

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Euro zone business activity contracted last month at the fastest pace since late 2020 as high inflation and fears of an intensifying energy crisis hit demand, according to a survey suggesting the bloc is heading for a winter recession.

Inflation in the 19 countries using the euro surged more than expected last month, reaching 10.7% and more than five times the European Central Bank's target, so the ECB is likely to press ahead with more interest rate rises and add to the burden faced by indebted consumers.

S&P Global's final composite Purchasing Managers' Index (PMI) for the euro zone, seen as a good guide to economic health, fell to a 23-month low of 47.3 in October from September's 48.1, albeit just above a preliminary 47.1 estimate.

Anything below 50 indicates contraction.

"After a weak third quarter of PMI and official GDP data, the latest survey results for the start of the fourth quarter suggest the euro zone economy is now headed for a winter recession," said Joe Hayes, senior economist at S&P Global Market Intelligence.

"High inflation is dampening demand and hurting business confidence. Fears that the energy crisis could intensify over the winter period are also feeding uncertainty and weighing on decision-making."

The new business index fell to 45.0, from 46.3 in September, its lowest reading since November 2020.

A PMI covering the bloc's dominant services industry nudged down to a 20-month low of 48.6 from 48.8, although above the 48.2 flash estimate.

High operating expenses due to energy, wages and transport costs pushed services firms to raise charges sharply again. The output prices index was 62.7 compared to September's 63.2, the fifth highest reading in the survey's 24 year history.

"October PMI data suggest inflationary pressures remained extremely elevated across the euro zone," Hayes said.

"A substantial worsening of economic conditions in the coming months may give policymakers a difficult decision to make with regards to the path of monetary tightening, for fear of being too aggressive and prolonging the downturn."

(Reporting by Jonathan Cable; Editing by Susan Fenton)

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Euro Zone Downturn Deepened In Oct, Winter Recession Likely -PMI

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