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Business activity in the euro zone fell faster than expected this month, according to a closely watched survey, dealing a further blow to the region's struggling economy.
The S&P Global Purchasing Managers Business Index (preliminary), an indicator of business activity in the region, fell from 47.6 in the previous month, marking the lowest level in two months, due to a decline in activity in the service and manufacturing sectors. It became 47.
The result was even lower than the 50 mark that separates contraction from expansion, and also lower than the 48 predicted by economists in a Reuters poll. S&P Global said the survey showed business activity in the euro zone fell in the fourth quarter at the fastest pace in three months since the pandemic hit in early 2020.
Executives across the region reported a drop in new orders, reductions in backlogs and job cuts, further fueling fears of a looming recession. However, businesses still report that selling prices have risen at a faster pace, pointing to continued inflation.
The findings, coupled with a significant downward revision to Germany's growth forecast for 2024 by the country's central bank, come as the eurozone economy, which had been stagnant for much of this year, contracted by 0.1% in the third quarter. He pointed out further weaknesses. High inflation, rising borrowing costs and reduced global trade are weighing on economic activity.
The survey also confirmed the ECB's caution about how quickly inflation will continue to fall as rapid wage increases push up price pressures in labor-intensive services sectors.
Andrew Kenningham, an economist at consulting firm Capital Economics, said the survey results “suggest a deepening recession and easing in the labor market, but we are still far from seeing a definitive turnaround in inflationary pressures.” It shows,” he said. “However, we expect that to change in the coming months as the recession drags on.”
S&P said sales prices at service companies rose at the fastest pace since July, even as input cost inflation slowed. This offset eight consecutive years of declines in manufacturer commodity prices, marking the smallest decline since May.
“Despite a slight slowdown in the rate of increase in input prices, companies were able to raise output prices even further than in the previous month,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which organizes the survey. said. “This suggests that companies have been successful in passing on some of the cost increases to their customers.”
If euro zone gross domestic product (GDP) contracts again in the fourth quarter, it will raise questions about whether the European Central Bank's (ECB) growth outlook on Thursday was too optimistic after keeping interest rates on hold. . The ECB expected the eurozone to return to modest growth of 0.1% in the fourth quarter.
Germany's central bank on Friday revised down its growth forecast for next year to 0.4% from 1.2%, but predicted that this year's decline would be slightly more moderate than the 0.1% initially feared, adding This further reinforced the impression of economic stagnation.
Germany's Bundesbank said on Friday that “the economic recovery has been postponed by about three-quarters,” blaming the gloomy outlook on “weaker-than-expected external demand from industry.” “The rising cost of financing is suppressing investment,” he added.
Germany's inflation rate will slow from 8.7% last year to 6.1% this year and 2.7% next year, the Bundesbank said, with a “significant rise” expected in December as energy prices rise higher than a year ago. He added that it would be possible. The government paid most households' gas bills.
He also warned that inflation in Europe's largest economy would remain above the ECB's 2% target for several years, forecasting it to reach 2.5% in 2025 and 2.2% in 2026. .
“Germany's inflation rate is on a downward trend, but it is still too early to tell for sure,” said Bundesbank President Joachim Nagel.
